TalkTalk Telecom PLCGroup Annual Report 2011 Report Annual
www.talktalkgroup.com TalkTalk Telecom Group PLC Annual Report 2011 TalkTalk Telecom Group PLC Directors’ Report: Overview 01 We are one of the leading fixed line Financial highlights 01 voice and broadband telecommunications What we do 04 businesses in the UK. We have over Chairman’s statement 06 4.8 million customers. Chief Executive Officer’s statement 07 Market overview 10 Demerger from Carphone Warehouse In March 2010 we demerged from The Carphone Directors’ Report: Performance review 12 Warehouse Group PLC and listed on the London Business review 14 Stock Exchange as TalkTalk Telecom Group PLC, Finance review 16 and are now a constituent of the FTSE 250. Principal risks and uncertainties 20 Corporate and social responsibility review 22
Directors’ Report: Governance 24 For more information visit: www.talktalkgroup.com Board and advisors 26 Corporate governance 28 Directors’ remuneration report 32 Other statutory information 39
Financial statements 40 Statement of Directors’ responsibilities 42 Independent Auditor’s report to the members of TalkTalk Telecom Group PLC 43 Consolidated income statement 44 Consolidated statement of comprehensive income 45 Consolidated statement of changes in equity 46 Consolidated balance sheet 47 Consolidated cash flow statement 48 Notes to the consolidated financial statements 49 Independent Auditor’s report to the Directors of TalkTalk Telecom Group PLC 86 Company balance sheet 87 Company reconciliation of movement in Shareholders’ funds 88 Notes to the company financial statements 89
Other information 94 Five year record (unaudited) 96 Glossary 97 Shareholder information 98 Overview Performance review Governance Financial statements Other information 01 Annual Report2011
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2011 2010 2011 2010 2011 2010 We have had strong EBITDA, EBITDA, strong had have We cash and flow earnings of growth, a year during across change major the business. Financial highlights Financial We For Statutory tax before profit Operating free cash flow*Operating free Revenue £m £m >100 +31 £m +4.7 * • 02 Overview Performance review Governance Financial statements Other information 03 10 07 04 06 Chairman’s statement statement Chief Executive Officer’s Market overview What we do Overview Directors’ Report:Directors’ 04
What we do
We are the UK’s leading value for money provider of fixed line broadband and voice telephony services to consumers and business users. We serve over 4.8 million customers across the UK under the TalkTalk, AOL Broadband and TalkTalk Business brands.
Largest unbundled UK network
Over the past five years, through a combination of organic How we are delivering value for money services for growth and acquisitions, we have built one of the UK’s largest our customers: broadband and voice customer bases. During the year we We operate the UK’s most extensive Next Generation completed the integration of the former Tiscali business we Network. We use this advanced network to provide our had acquired in 2009, so that the majority of our base now customers with a range of clear, consistent value for comprises TalkTalk customers. money broadband, voice and associated services.
For more information visit: www.talktalkgroup.com
TalkTalk Telecom Group PLC | Annual Report 2011 Overview Performance review Governance Financial statements Other information 05
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Chairman’s statement
“This first year since our demerger has been one of intense activity for TalkTalk, building a strong base on which we can offer an enhanced experience for all our customers, and continue to grow our revenue and profitability.”
Charles Dunstone Chairman
The demerger of TalkTalk from Carphone Warehouse at the At the heart of TalkTalk is our commitment to be the UK’s best end of last year was designed to build value for Shareholders value for money provider of broadband, voice and television by giving both companies the freedom, focus and flexibility to services. That commitment is now more important than ever. develop and pursue the strategies that were right for each of Consumers and businesses are still facing a difficult economic them. One year on, there can be no doubt that the demerger environment, with budgets under pressure and likely to remain has worked. TalkTalk’s first year as a standalone company has so for some time. Broadband is now an essential service, and been one of intense activity and we are delivering the benefits we will be absolutely true to our heritage of giving customers of our growth and scale, reporting strong growth in earnings consistently the best value for money products in the market. and operating free cash flow. Giving customers value is about more than offering them the I have sometimes described TalkTalk’s acquisition of Tiscali lowest prices. It is also about what they get for their money, in 2009 as being like a snake swallowing a goat – prolonged, and we have now included our unique new HomeSafe service sometimes painful but worth it in the end! We started the into all TalkTalk products. Parents are becoming increasingly year with our Tiscali customers having been rebranded and concerned about what the internet can bring into their homes, moved onto TalkTalk tariffs, but still on separate networks and and HomeSafe allows them to control this effectively. It also separate billing systems. Through the course of the year we demonstrates how TalkTalk can use its advanced network migrated almost all of them onto our own network and billing technology to develop innovative services that customers want. system. This was an enormous and complex operation, at the Early next year we will be transforming our customers’ end of which we have a stronger, integrated business that is television viewing experience. UK households can currently ready to take the next big steps forward. choose between Freeview, the free, basic multi channel The process of absorbing Tiscali’s customers into TalkTalk TV service with limited functionality, and high cost pay TV was not always painless, and some suffered disruption to services, offering an extensive range of content and functions. their service. We sometimes did not deal with these problems YouView from TalkTalk will bridge the gap between these two as well as we should have done, and this resulted in some extremes. Customers will get all the Freeview content they are customers getting frustrated with us and leaving TalkTalk. used to, but with advanced catch up and video on demand However, I am certain that for those customers who stayed functions, all integrated within a simple, intuitive program with TalkTalk, and they are the vast majority, the journey menu. And they will get all this in value for money packages was worthwhile and they will now enjoy a consistently that are just not available in the market now. better customer experience. In this very active year, we have mapped out our course for The successful integration of Tiscali has given us a strong the next phase of TalkTalk’s development, and taken some base to build on, but there is still a huge job to do to make major steps forward. To reflect this progress, from the start TalkTalk more efficient and to give our customers an even of the 2012 financial year, we intend to distribute 50% of better experience. We are now implementing a new strategy our Headline earnings per share as regular dividends. to do this, and to drive further revenue and profit growth. Last year was a challenging one for our employees, and This includes transforming the way we work, expanding on behalf of the Board I would like to thank them all for the coverage of our network, and developing exciting their efforts, and for their continuing commitment to new products and services for our customers. TalkTalk and to our customers.
TalkTalk Telecom Group PLC | Annual Report 2011 Overview Performance review Governance Financial statements Other information
07 a
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Chief Executive Officer’s statement continued
HomeSafe Exclusively available to TalkTalk customers free of charge, HomeSafe provides unique network level safety and security for all devices using the internet connection in the home including games consoles and smart phones. The parental control features, including homework time, help parents make choices about how to keep their families safer online.
1. Extending our network 3. Delivering value for money quad play services We ended the year with our own advanced equipment in 2,007 We are committed to providing an expanding range of clear, of the UK’s local telephone exchanges, covering over 86% of value for money services for our customers. More of our the country’s households. These unbundled exchanges are customers now take both broadband and voice services, and linked to our core national Next Generation Network by our more also opt for our higher value “Plus” product, which now high capacity, low cost backhaul circuits. This all IP network makes up 14% of our total base. We aim to drive this customer enables us to manage multiple services efficiently, control mix improvement further, and introduce more “Boosts”, which service quality, and develop new services rapidly and give customers extra value and billing certainty. cost effectively. TalkTalk is all about giving customers consistently the best value Unbundling delivers substantial benefits including higher for money experience in the market, and we have reinforced ARPU and lower churn across the customer base, access to this commitment by recently reducing the Headline price of inbound call termination revenue, lower regulated charges, our Essentials and “Plus” products for all our customers taking and lower backhaul costs. Migrating our customers onto our either of these products. network delivers a better experience for our customers, the Value for money is not just about price, it is also about opportunity to offer them more products and a rapid return what customers get for their money, and we have now on the investment. added our new, free HomeSafe option to our Essentials and We are now extending our network by unbundling a further Plus propositions. HomeSafe is the UK’s first network-level 700 exchanges. This will bring our coverage up to 93% of the security product, which works by filtering a customer’s UK’s households, and with 2,700 unbundled exchanges our broadband before it enters the premises. It allows parents aim is to serve 93% of our customers on our own network. to decide what internet content they want to come into their home, and protects every internet device in the household. 2. Improving operating efficiency and effectiveness We have extended our product range by offering great Our target is to generate £40-50m of operating efficiencies value mobile services for our existing customers, aimed over the medium-term, by simplifying our business processes, at families seeking to reduce the costs of calling between eliminating duplication, and in doing so deliver a better service family members, and we now plan to extend the range of to our customers. our mobile offers. Towards the end of the year we launched a major organisation The next major milestone in the implementation of our restructuring that will generate £25m of operating efficiencies quad play strategy will be the launch of an innovative value annually. Changes include integrating all our technology and for money television service to our customers. This will be IT capabilities into one organisation and streamlining all our built around YouView, a new, open technical standard for non customer facing business operations. These changes mass market television being developed by a joint venture will also greatly improve the quality of the end to end that includes TalkTalk and all the UK Public Service experience we deliver to our customers, which will enable Broadcasters, including the BBC, BT and Arqiva. us to address customer services issues and start to reduce our overall customer service costs.
TalkTalk Telecom Group PLC | Annual Report 2011 Overview Performance review Governance Financial statements Other information 09 we
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Market overview
At the end of December 2010 there were 19.5 million household broadband connections in the UK, 3.9% more than at the same time the previous year. It is estimated that more than 75% of UK households now have a fixed line broadband connection.
The UK has one of the most competitive and innovative telecommunications markets in Europe. With consumers and businesses still facing a tough economic environment, and budgets under pressure, TalkTalk is clearly positioned as a value for money provider, with a strong appeal to customers seeking the best value offers for what is now an essential household and business service.
Fixed line broadband Unbundled broadband With 4.2 million fixed line broadband customers, TalkTalk’s At the end of March 2011 there were 7.6 million unbundled market share at the end of December 2010 was 21.5%. broadband lines in the UK. TalkTalk was the largest unbundler, BT Retail was the largest broadband service provider, with a with 3.6 million lines, 47.3% of the total UK market, and a total 27.7% market share. The other large scale service providers of 2,007 local exchanges unbundled. were Virgin Media and BSkyB.
21.5% 47.3% TalkTalk market share at December 2010 TalkTalk share of unbundled market
On-net base Percentage of customers on-net
2011 3.607 2011 86
2010 3.110 2010 74 million %
TalkTalk Telecom Group PLC | Annual Report 2011 Overview Performance review Governance Financial statements Other information 11 of price and
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Business review
Overview TalkTalk continued to acquire new broadband and voice The Group delivered a strong performance in its first year as customers during the year. Our higher value “Plus” product a standalone entity generating material growth in profitability sold well, accounting for 14% of the total base at the year (Headline EBIT up 27%) and cash generation (operating free end, compared to less than 5% at the start of the year. The cash flow up 31%). Our customer base has remained broadly proportion of fully unbundled broadband and voice customers flat during the year as we have focused the business on increased from 53% of the total broadband base at the start unbundling, taking the percentage of customers on our network of the year, to 66% at the year end. This improved customer from 74% to 86% and growing ARPU on our broadband base mix was one of the main drivers of the 6% growth in broadband 6% from £23.6 in Q4 2010 to £25.0 in Q4 2011. Substantially ARPU from £23.6 in Q4 2010 to £25.0 in Q4 2011. completing the integration program has delivered significant The unbundled estate increased by 265 exchanges, to 2,007 margin improvement in the second half of the year and we exit at the year end covering 86% of households. The network the year with the full benefit of £55m integration synergies expansion was completed ahead of plan, which enabled us included in our EBITDA run rate. As this increase in profitability to accelerate the customer migration schedule. The migration flows through to operating free cash flow we continue to deliver of customers onto our own network therefore slowed on our commitment to cash growth. substantially in the fourth quarter. As the next wave of new All figures presented within the Business review are presented unbundled exchanges start to come on stream early in the on a Headline basis as this is the way in which management current year the pace of migrations will accelerate again. reviews the business. Our Statutory results are presented in the Finance review. Non-broadband customer base and ARPU The non-broadband base consists primarily of voice only Customer base and ARPU customers, and declined to 678k at the year end, from 999k at the end of the previous year as customers continue to take Growth both phone and broadband services. Non-broadband ARPU 2011 2010 (decline) also declined from £21.8 at the start of the year to £17.7 at Broadband (k) 4,199 4,197 2 the year end due to the reduction in fixed line usage. Non-broadband (k) 678 999 (319) Headline financial statements information On-net base (k) 3,607 3,110 497 Growth Of which: £m 2011 2010 (decline) MPF base (k) 2,751 2,211 540 Broadband 1,247 1,086 14.8% SMPF base (k) 856 899 (43) Non-broadband 189 273 (30.8)% Corporate 329 327 0.6% Off-net base (k) 592 1,087 (495) Total revenue 1,765 1,686 4.7% EBITDA 276 221 24.9% ARPU Q4 2011 Q4 2010 EBITDA margin 15.6% 13.1% Broadband £25.0 £23.6 5.9% Depreciation and amortisation* (84) (70) Non-broadband £17.7 £21.8 (18.8)% EBIT 192 151 27.2%
*Includes share of results of Joint Venture. Broadband customer base and ARPU The on-net customer base grew 16% to 3.607 million as Revenue 86% of our new customers are fully unbundled and we have Our revenue is principally derived from the provision of voice migrated customers from IPStream and data stream during and broadband services. A customer is treated as a broadband the course of the year. This was offset by a decline in the customer where they receive broadband and, where relevant, off-net customer base. voice and mobile services. A customer is classified as non-broadband where they do not take broadband and receive Higher customer churn during the year was mainly voice only or narrowband services. Our revenue is a function concentrated among off-net and SMPF customers who of the mix of services received by the customer and the were subject to significant disturbance through the migration size of the relevant customer base. ARPU is an indicator of process and have a higher broadband price than our fully the average value of the services we supply to each customer. unbundled customers. The 540k increase in the number of fully unbundled customers was broadly offset by the 43k Corporate revenue represents revenue generated by TalkTalk decline in the partially unbundled base and 495k decline Business in the provision of voice and data services to in the off-net base, with the total broadband base ending corporate customers and resellers. flat year on year at 4.2 million.
TalkTalk Telecom Group PLC | Annual Report 2011 Overview Performance review Governance Financial statements Other information 15
Annual Report2011
|
TalkTalk Telecom Group PLC PLC Group Telecom TalkTalk
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growth. To reflect this, from the start of the 2012 financial financial 2012 the of start the from this, reflect To growth. customergrowth.
continue to appeal strongly to customers the strongly seekingappeal to continueto
Exceptional cash spend – £30m £25m a continuingnon-broadbandwith revenues, decline a in flat.broadly be expectedBusiness to revenue TalkTalk customers broadband on-net 250k – 200k add to customer expect We off-net of level similar a see to and year the during year the through build loss.expectedMomentum to is with year the exit to expect we and down, comes churn as positivecustomeradditions, broadband net leavingthe with further unbundling year, the flat over broadly base drivingARPU. customerhigher and mix the improving – 18.0% EBITDA margin: 17.0% benefit will customer fullEBITDA mix,margin a Thefrom incrementalTiscali an of integration synergiesyear (adding £40m the synergies benefitsof to 2011), in captured £15m generated efficiencies operating £25m the of half over and by in be expected to is EBITDAmargin our in increase The mainly year, the secondhalfof the towards weighted restructuring the reflecting of phasing program. the Earnings per – 16.5p share: 15.5 Capex: of total 6% year revenue flat broadly be to expected is expenditure Capital on as network productsservices. and Operating of total 11% revenue free cash10% – flow: Revenue: broadly flat offset be growth expectedby revenue to Broadband is • • • • • Outlook and broadband money for value leading UK’s the is TalkTalk tougher positionedthe well in are we and providervoice consumersbusinessesenvironmentboth and that are under remain budgets business and Household facing. approach now money for value consistent, clear, our and pressure, will essential service.an now bestofferswhatis value for and scale, substantial achieved and rapidly grown has TalkTalk successfully strategy our execute can we that confident are we deliverstrong, continuesustainable to and profit and cash flow 50%out pay Headline of to intends Board the onwards year dividends. regular as share earnings per financial guidance2012 •
31.1% Growth 24.9%
: £508m). :
(2) 119 221 2010 (100) (508) (10) 276 156 2011 (110) (438) and carrier services and the full year effect of Tiscali. of effect year full the and services carrier and
in the first half of the year. the first half of the in
EBITDA margin improved to 15.6%, from 13.1% last year. lastyear. 13.1% 15.6%, from to improved EBITDAmargin has delivered overall synergy benefits of £40m in the year, year, the in £40m of benefits synergy overall delivered has voice products has been offsetproductsvoicebeen growthdatahas both by in
the disposal of our fixed line businesses in Ireland and businessesIreland line in fixed our disposal of the the year accounting for £16m of the revenue reduction. revenue the of £16m for accounting year the
line with our guidance to focus on delivering our unbundlingdelivering our on focus guidancewithto our line (2010 £438m to strategy and unified£70m billingby system. As a result of reduced our cash debt net generation The Group grew operating free cash flow in the year to £156m £156m to year the in flow cash free operating grew Group The reflecting year prior the on 31.1% of increase an £119m) : (2010 have We year. significant the the EBITDA in improvement in investmentcapital control our in continued expenditureinto Operating free cash flow Net debt Headline EBITDA Working capital Capex Operating free cash flow and net debt £m resulting from the improvement in EBITDA offset by an increase increase an by offset EBITDA in improvement the from resulting continued our from resulting amortisation and depreciation in systems.billing and out investmentroll exchange in the elimination of backhaul and other networkother backhaul and elimination duplication of the consolidation and systemsprocesses. of and £151m) : (2010 £192m to 27.2% by increased EBIT Headline Our The integration program has been substantiallybeen has integrationprogram completedThe and benefit accessincluding the savingsof migrationsfrom and and integration enhancementthe margin reflectedfrom This the effect year full Tiscali the program,of performance and business. broadband growth our the in services Headline profit £221m) : (2010 £276m 24.9% to by EBITDAHeadlinegrew Revenue from our corporate servicesour from flat Revenue at broadly was in usage line fixed reduction in as £327m) : £329m(2010 our take both phone and broadband services, the revenue from this this from revenue the services, broadband and phone both take our of disposed We beginning £273m). the : at (2010 £189m to reduced businesses base voice line fixed Ireland and Belgium of year on year to £1,247m (2010 : £1,086m) reflecting the £1,086m) : (2010 £1,247m to year on year customer higher and year the throughout ARPU increasing base to base customer non-broadband our upsell to continue we As Belgium at the beginning of the year, our underlying revenue revenue underlying our year, the of beginning the at Belgium 5.7%. by grew business increased14.8% broadband our from Revenue reflecting growth in our broadband revenue together together with revenue reflecting broadband growth our in effect Tiscaliyear full the acquisition. the of Non-broadband effect the Excluding expected. as year the during fell revenue of Revenue increased by 4.7% to £1,765m (2010 : £1,686m) £1,686m) : (2010 £1,765m to 4.7% increasedby Revenue 16
Finance review
Reconciliation of Headline to Statutory information Exceptional items Investment in our One Company integration program was Income statement £43m for the year comprising £36m of operating expense and
£7m of asset write downs, this included network integration £m 2011 2010 Growth costs principally in relation to the decommissioning of the Revenue 1,765 1,686 4.7% legacy Tiscali network and consolidation and replacement to Gross margin 888 848 4.7% create a higher capacity network, certain costs relating to the migration of TalkTalk, AOL and Tiscali customers onto our core Operating expenses excluding billing system and the integration project teams responsible amortisation and depreciation (612) (627) for delivery. Headline EBITDA 276 221 24.9% As a result of acquisitions in prior years, the number of legal Exceptional items entities in the Group’s structure has been increasing. As part – One Company(2) (36) (47) of the integration program, an entity rationalisation program Exceptional items was undertaken to achieve a more dividend efficient and – Operating efficiency(2) (12) – cost effective structure. This has included the liquidation of a number of both UK and overseas entities which, in the current EBITDA 228 174 31.0% year, has resulted in the recycling of £4m of Translation Depreciation and amortisation reserves to the income statement as an exceptional credit. Operating(1) (84) (70) Following our restructure program and the disposal of our (2) Belgian and Irish businesses at the beginning of the year, Exceptional (7) (5) we have no overseas trading entities. Non operating amortisation(2) (62) (83) On 26 January 2011 a restructure of the Group was announced Operating profit 75 16 >100% to improve the operating efficiency of the Company and to Finance costs (18) (5) generate annualised cost savings of approximately £25m. The consultation with employees was completed ahead of Profit before taxation 57 11 >100% the year end and, as a result, a charge has been recognised Taxation (22) (14) in the income statement in relation to the provision of Profit (loss) for the year 35 (3) >100% redundancy and associated costs totalling £12m.
(1) Includes share of results of Joint Ventures. (2) Excluded from Headline results. EBITDA EBITDA after exceptional items has grown by 31.0% to £228m (2010 : £174m). Exceptional costs within EBITDA are Revenue comparable on a year on year basis at £48m (2010 : £47m) Revenue increased by 4.7% to £1,765m (2010 : £1,686m) and are discussed above. The improvement in EBITDA reflecting growth in our broadband revenue together with principally reflects the benefits of the integration program the full year effect of the Tiscali acquisition. Non-broadband together with an additional quarter of Tiscali and growth revenue fell during the year as expected. Excluding the effect in broadband revenues. of the disposal of our fixed line businesses in Ireland and Belgium at the beginning of the year, our underlying revenue Amortisation of acquisition intangibles grew by 5.7%. The amortisation charge in respect of acquisition intangibles amounted to £62m (2010 : £83m). The reduction reflects Gross margin the full amortisation of certain AOL acquisition intangibles Gross margin for the year was £888m (2010 : £848m) which in the prior year partially offset by the full year effect of the represents a flat year on year margin of 50.3% (2010 : 50.3%). Tiscali acquisition. The decline in non-broadband and usage together with the impact of regulatory price increases was offset by the Profit before taxation improved contribution from product mix, the benefits of our Statutory profit before taxation grew over five fold to £57m One Company access migrations and the margin accretive (2010 : £11m). This reflected the significant increase in effect of Tiscali. Headline earnings, decrease in non operating amortisation partially offset by the increase in finance costs resulting Operating expenses from the debt structure post demerger. Our operating expenses in the year improved by £15m from £627m in the prior year to £612m. This reflects the benefits of our integration program primarily on our network and IT costs and a focus on effective cost control within management overheads offset by the full year effect of Tiscali.
TalkTalk Telecom Group PLC | Annual Report 2011 Overview Performance review Governance Financial statements Other information 17
31.1% Growth 24.9% – (2) (5) (20) (54) (58) 119 221 2010 Annual Report2011 (251)
(100) (239) (450) (508) | 7 – 70 (15) (16) (19) (10) (43) 276 156 2011 (110) (438) (508) (1) TalkTalk Telecom Group PLC PLC Group Telecom TalkTalk
(2) (2) the year. year. the
line operations resulted in the receipt of proceeds of receipt the operationsin resulted line together with spend of £16m on demerger costs.demerger on £16m with of spend together
a payment of £5m in relation to our investmentthe our in to relation £5min payment of a
value provisions.value
£4min our customers, our customerfor planned Pipex base with the be able to manage all residential customers on one coreresidentialcustomers one all manage on to able be
comprising a £14m adjustment for the Tiscali the adjustmentacquisition for comprising£14m a offsetbusiness acquisitionsstrategicbusinesssmall to by and BelgianIrish and our of sale The venture. joint YouView fixed of Opening net debt Closing net debt Includes(1) sundry items of £2m, including foreign exchange on-net(2) Including debt. loans to related parties, net debt was £436m (2010 : £505m). Capital expenditure £100m), : (2010 £110m was year Capital the expenditurein 5.9%).year : Duringthe 6.2%representing (2010 revenue of furthernetwork unbundlinga our exchangesby 265grew we estateto partialoutentire building our and unbundlinginto Tiscali customersonlythe broadband ontomigrate to us allow capabilitynetwork.billing own internal our our expanded We to substantially migrated and allyear system billing the during of financial year. 2012 the migrationduring primarily Workingwas capital £2m) : (2010 £10m of outflow capital working The Tiscali the business integrationof including the the to due certain alignmentof Tiscali initialcreditorsunwindof and fair Exceptional and demerger costs ExceptionalcashCompanyassociated spendOne with the £43mtotalling the integrationprogram incurredin was year Acquisitions and disposals acquisitionsto relation £5m cashwas inflow in Total Cashflow and net debt £m Headline EBITDA Working capital Capex flow cash free Operating Company One – items Exceptional demerger – items Exceptional Acquisitions and disposals Dividends paid Interest and taxation Cash flow relating to demerger Net cash flow
15.1% Growth
14.4% 14.3% 24.5% 24.3% 23.9%
98 (3) 106 2010 11.2p 11.8p 10.9p 10.3p (0.3)p (0.3)p 35 122 122 2011 3.7p 3.9p 13.5p 13.5p 12.8p 12.8p 13.5 10.9
%
: (0.3)p) reflecting the Group’s Statutory(0.3)p)reflecting the Group’s : for the profit
2010 2011 Basic EPS the purposes of calculating purposesof resultingfrom the EPS diluted whichcan detailsof plans, option the share employee financial the statements.to five note in found be (2010 average weighted calculateda was on EPS Basicbased year. Dilution 898 : million). (2010 million907 of shares of number for applied been has 50million) : (2010 shares million 45 of £11m which,effected, tax £8m. earningsreducesby £11m standalone a grew basis on share earnings Headlineper Statutory 3.9p10.9p). was EPS : 23.9%(2010 13.5p by to post demerger, EPS is also shown on a ‘proforma standalone’ standalone’ ‘proforma a on shown also is EPS demerger, post year on basis.standaloneyear similarThe assumesa basis chargeinterest structure debtyear prioradjusts the and effect the by accordingly.increasinghas interestThis of provided on a Headline basis as well as a Statutory a as well basis.as basisHeadline a on provided Statutory reconciliation to full Headline of A resultscanbe financial the statements.to nine note in found significant the debt addition,structure to in In change due In order to provide a meaningful comparison and to remove remove meaningful comparisona to provide and to order In distortion the is exceptionalshare items, of earnings per Statutory earnings (£m) Basic EPS Diluted EPS standalone’ basis (£m) basis standalone’ Basic EPS Diluted EPS Basic EPS Diluted EPS ‘proforma a on earnings Headline Headline earnings (£m) Earnings per share
pence +24 18
Finance review continued
Acquisitions and disposals (continued) Interest The final purchase price agreement of Tiscali of £14m in Net interest costs charged to the income statement were relation to working capital and customer numbers together £18m (2010 : £5m) reflecting the capital structure of the with the finalisation of the deferred consideration for the Group post demerger. The blended interest rate charge on acquisition of UK Telco of £1m occurred in the year. the debt was 3.07%. Net interest paid in the year increased As both acquisitions were made prior to 1 April 2010, to £17m (2010 : £3m) broadly in line with the charge in the the provisions of IFRS3 (2004) apply and, as a result, an income statement. adjustment has been made which has reduced goodwill by £15m. This is disclosed in note 29 to the financial Taxation statements and the prior year balance sheet has been The effective Headline tax rate for the year was 30% (2010 : 28%) restated accordingly. representing a tax charge of £52m (2010 : £41m) on Headline profit before tax of £174m (2010 : £147m). Although the Group Dividends had minimal disallowable expenses in the year, the rate is Our current policy is to increase the dividend payment broadly slightly ahead of the Statutory corporation tax rate as the tax in line with growth in our Headline earnings per share. charge reflects the impact of the reduction in corporation tax rates enacted in the year on our deferred tax assets. Dividends paid in the year of £15m comprised the interim dividend of 1.7p per share which was paid The reduction in corporation tax rate from 28% to 26% created on 17 December 2010. a charge through the income statement of £9m resulting from the downward revaluation of deferred tax assets. This has been The Board has declared a final dividend of 3.9p per share partly offset by a prior year adjustment of £5m relating to the which will be paid, subject to shareholder approval, recognition of additional tax losses and capital allowances. on 5 August 2011 for Shareholders on the register at 8 July 2011. The total declared dividend for the year was The tax charge for the year on Statutory earnings for the year 5.6 pence, which provides dividend cover of 2.4 times. was £22m (2010 : £14m). The principal differences between the tax charge and the standard rate of corporation tax are the To reflect the cash generation profile of the Group, our impact of the reduction in corporation tax rate and a small dividend policy from the 2012 financial year will be to return element of disallowable exceptional spend offset by the £5m to our Shareholders 50% of our basic Headline earnings prior year adjustment. per share in the form of ordinary dividends. There have been tax payments in the year of £2m (2010 : £2m) Net debt which relate to the final corporation tax assessment of our AOL Net cash inflow was £70m (2010 : net cash outflow Luxembourg entity prior to its liquidation. of £450m). Net debt including loans to related parties was £436m (2010 : £505m). Excluding loans to related parties net debt was £438m (2010 : £508m).
Taxation and treasury Statutory profit before tax 2011 2010 £m Headline Statutory Headline Statutory % Operating profit 192 75 151 16 >100 Interest (18) (18) (4) (5) Profit before taxation 174 57 147 11 Taxation (52) (22) (41) (14) 2011 57 Profit (loss) for the year 122 35 106 (3)
Headline tax rate 30% 28% 2010 11 £m
TalkTalk Telecom Group PLC | Annual Report 2011 Overview Performance review Governance Financial statements Other information 19
Annual Report2011
| (508) (438) TalkTalk Telecom Group PLC PLC Group Telecom TalkTalk 2009.
going concernaccountingthe going preparing of basisin set out in the Chief Executive Officer’s statement on pages pages on statement Officer’s Executive Chief the in out set
the financial manages the statementsGroup describes the how
2011 2010 Net debt £m of a competitive Directorsa offering play the of that quad means abilitycompete to continue to confidentGroup’s the are of effectivelytelecommunications UK the sector. in £650m has Group committedThe of credit facilitiesas and £255m. was facilities these on headroom the 2011 March 31 at projections,forecasts account and into taking Group’s The performance, reasonablytrading possible changesin indicate sufficient is this,facilities that there that our and on headroom is positioning,Group market withthe thatour together means the itsbusinessfor manage risks successfully placed to well has and existence operational in continue to resources adequate adopted therefore Directors Thefuture.have foreseeable the financial statements. Going concernConcern ‘Going guidance the acknowledged have Directors The Liquidity and Companies UK Directors of Guidance Risk: for Financial2009’, the Reporting published by Council in October likely factors the with together activities, business Group’s The affect to development,itsfuture performance position and are financialThe 15. to 14 pages Businesson review and 9 to 7 itsfacilitiescashborrowing flows and Group, positionthe of 19 addition,described In Finance note withinare this review. in exchange risk,risk,financialforeign rate including interest risk liquiditycredit and risk. uncertain,Whilstcurrent economic remains climate the money for value customer our base,our of breadth the proposition,operatingefficiency improved largest the and developmentwith our together unbundled UK network the in
has been made towards this target with gearing gearing with target this towards made been has
31 March 2011 of 106%. of 2011 March 31 Group was in compliance covenantin withwas conditionsthe Group
term loan matures in March 2015. The terms of both of terms The 2015. March in matures loan term identical. covenants are the and similar facilities are
both facilities at the year end. As at 31 March 2011, £395m £395m 2011, March 31 at As end. year the at facilities both at
the currentfinancial year. the
note 1 to the financial statements, has had no material financial effectmaterial the no statements, had to has 1 note in Group, Best Buy Europe and Carphone Warehouse Group plc plc Group Warehouse Carphone and Europe Buy Best Group, the to 28 Note parties. related be to considered longer no are relationships. party related our discloses statements financial disclosed as in year, standardsthe other in adoptionof The The standard simplifies the definition of a related party, with party, related a of definition the simplifies standard The implying automatically longer no entity or person shared a the of impact The partyrelationship. related a of existence the the of demerger the following that is standard this of adoption Accounting developments party ‘Related (2009) 24 IAS adopted early has Group The statements. financial these of preparation the in disclosures’ In the first year as a a standalonesignificant firstas company, year the In progress as The Board reviews the capital structure of the Group on an an on Group the of structure capital the reviews Board The financial the to 19 discussednote as and,in basis annual gearing target medium-term the that considers statements, 100%. to 75% is Group the for in line with best practice, to ensure effective management of of management effective ensure to practice, best with line in risk. exchange foreign and interest Group’s the Capital structure The Group is exposed to limited cross border transactional transactional border cross limited to exposed is Group The at hedged are these significant, where but commitments Treasury Group The contracts. currency forward using inception Board, the by approved framework the within operates function in advance of maturityadvance of in dates. Policy The on combined these facilities. on downdrawn been isIt had refinance facilities policyits to significantly Group’s the used for working capital purposes and a term loan of £100m. £100m. of loan term a and purposes capital working for used whilst revolvingcreditThe facility 2013 March in matures the the of our subsidiaries is arrangedcentrallysubsidiaries emphasisis our with an of efficient on is Group the management.cash in funding All committed lengthbasis.armsGroup’s The an on provided facilities bank £550mcomprise a revolvingcredit facility facilities, retained profits and equity. During the year the Group Group financedcommitted by operations are bank the Group’s The year the During equity. and profits retained facilities, overdrafts uncommittedof some use and make to able was assist facilitieswithto working capital management. Funding Funding 20
Principal risks In common with other organisations, we are affected by a number of risks, not all of which are in our control. and uncertainties Some risks, such as UK macroeconomic factors, are likely to affect the performance of UK businesses generally, while others are particular to our operations. This section sets out the material risks to the Group and how we seek to mitigate them in the day to day running of our business.
Risk area Potential impact Mitigation
Increased competition in the UK We regularly monitor the product broadband market may impact offerings of key competitors in the financial performance. market. This results in an ongoing 1 review of the customer proposition and the overall value of our products. Competitive environment
Changes in regulated prices We actively participate in the pricing can significantly impact the discussions had by Ofcom, including Group’s performance. the use of independent experts to 2 provide assistance and evidence as required. Regulatory environment
Failure to provide a reliable service We focus continually on improving causes customer churn. network resilience and performance, and continue to invest to ensure 3 we keep pace with customers growing demands. Network reliability
We are undertaking a significant We have a Group Change Forum change to our organisational structure comprised of senior managers which at the start of the 2012 financial year. is responsible for centrally monitoring 4 Disruption to business operations group wide change. and back office functions may impact Change management financial performance. Teams are established to run the component projects of the overall change, with clear plans in place for each area. Regular progress reports are provided to ensure key dates are met.
Demand for fibre access could The Group is working with Openreach grow significantly before a wholesale to develop fibre products which incur product with acceptable economics lower set up and provisioning costs. 5 is available for the Group to market There is close liaison with Ofcom to to customers. ensure there is regulatory support for Fibre access technology development of fibre products suitable for mass market adoption.
TalkTalk Telecom Group PLC | Annual Report 2011 Overview Performance review Governance Financial statements Other information
21
Annual Report2011
| TalkTalk Telecom Group PLC PLC Group Telecom TalkTalk In addition,the Group has established a Compliance Committee chaired by John Director, Independent Senior the monitors Committee This Gildersleeve. the level of and reason for customer complaints and ensures appropriate remedial action is taken. TheGroup is part of the YouView joint venture, along with the BBC and other parties,television developinga which is service which includes internet based services. demand on video and up catch A Group wide project was started during the Project year, Sunshine, to document, review and improve the end to end processes in the driving to key is project This Group. joined up processes across the Group and improving our customers’ experience. Compliance Committee Group’s The regularly monitors the level and reason for customer complaints. Mitigation The Group continually reviews its data security and implements new solutions as they become available. TheExecutive team continues to work that demonstrate to Ofcom with closely actionappropriatetaking is Group the to remedy the issues which led to the notification from Ofcom of the contravention of General Condition under section11 94 of the Communications Act.
of General Condition 11 11 Condition General of
the Group may lead to customer customer to lead may Group the section 94 of The Communication Communication The of 94 section
Provision of television services could become a more important driver of competitive advantage in the broadband market. processes effective operate to Failure across churn, and non-compliance with regulatory requirements. contravention under Act 2003. Ofcom may issuea penalty to the Group under this Act. Potential impact Loss of customer data could lead to data protection breaches causing damage to our reputation and fines. During the year we have had a notification from Ofcom of
For more information visit: www.talktalkgroup.com End to end process and controls 9 Television 8 Ofcom 7 6 Data integrity and security Risk area 22
Corporate and social responsibility review
Leading the way on digital inclusion, 2. Environment employee engagement and sustainability. We will continually improve our environmental performance by using sustainable resources, promoting efficiencies and innovation throughout our business and products and TalkTalk plays a pivotal role in helping over 4.8 million consumer encouraging our suppliers to do the same. Our energy use and business customers to connect, communicate and thrive per Gb of bandwidth use has fallen over a three year period in the digital age. We’ve always been active in the communities leading to our achievement of the Carbon Saver Standard. in which we operate and this year we’ve given our activities more structure and clearer targets so we can more easily track Our target is to further reduce our carbon footprint by 25% by and share our achievements. Our Corporate Responsibility 2021 (based on Gb use of broadband services) and to inspire program is built around three themes where we believe our employees and customers to lead a greener life and help we can make the biggest difference – digital inclusion, the us to reduce our environmental impact on the world we share. environment and employee engagement. We will reduce our carbon footprint and waste, by focusing on: 1. Digital inclusion • Energy The internet connects and entertains, educates and informs – • Building materials it even saves us money. Yet nine million people in the UK have • Appliances never been online, and over four million of those are socially • Water excluded due to age, unemployment or income. And this group • Ventilations will become increasingly isolated as more public and private • Travel services move online. That’s why we support and run a number • Refuse of initiatives to help communities to bridge the digital divide. This year we have been included in the FTSE4Good Index, • Race Online 2012 the leading global responsible investment index, and won Led by the UK’s Digital Champion, Martha Lane Fox, Race several awards. We have also received a BREEAM(2) “Excellent” Online calls on people to inspire, encourage and support accreditation for our West London headquarters. the UK’s digitally excluded to take their first steps online. Benefits to the UK are forecast to total £22 billion, while 3. Employee engagement households can save £560 per year(1). TalkTalk was one of Employees the founding partners and has pledged to contribute by Our people are central to the success of TalkTalk and we have getting 100,000 more people online by the start of the embarked on a program to make the business “A Brighter London 2012 Olympics, through education, training and Place for Everyone”. We want our people to feel included, awards programs. respected and most importantly enjoy their jobs and be passionate about the great culture we share within our work • TalkTalk digital champions environment. We want to recognise our people for doing Our employees share their internet know how in their local great work and helping to drive our business forward. communities. Our start up kits give them ideas to take to anyone they think would benefit from being online – from Brighter Basics their grandparents to local charities. Uptake has been Our Brighter Basics are a set of values and benefits that impressive, with nearly 200 staff signing up in the first capture our personality and unique identity as a Company. week in April 2011 alone. They define our aspirations as a way of every day life at work • TalkTalk brighter futures and reach out into our personal lives and our communities. We aim to get 1,000 more families in Brent online during Brighter Basics are described on page 9. the 2011 calendar year by working with the Local Education Authority to deliver E-Safety training alongside free and Digital hero awards discounted broadband and telephone packages. In the These annual awards reward North West, we offer free connections and hardware via outstanding individuals who use schools in Salford and we’re the lead partner in Go ON digital technology to bring about Liverpool, the campaign to help socially and digitally positive social change. In 2010, entrants from the 12 UK regions excluded adults and children in the city. received over 140,000 public votes between them. The 12 regional winners were invited to the House of Lords where they received bursaries to fund both new and existing projects.
TalkTalk Telecom Group PLC | Annual Report 2011 Overview Performance review Governance Financial statements Other information
23
, the , Annual Report2011
| leave to take part take in to leave
their localcommunity. their
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For more information visit: www.talktalkgroup.com ‘The Economic Case for Digital Inclusion’ October 2009, PWC.The most widely used environmental assessment method for buildings. apply for free tickets to attendshows through X-Factor ticketsto free applyfor £1m over the eight years we’ve partnered Ambitious About About Ambitious partnered we’ve years eight the over £1m
employees in the UK free broadband and an equivalent an and broadband free UK the employeesin benefit communities our in difference big a make can we that believe We 3,900inspiring our by involved.projectsget New employeesto include calendar2011 year the for opportunityof day paid staffa for take to fundraisingactivities volunteeringor in Companywithcharity, workour employeescontinueOur to Autism About Ambitious withpeopleautism.condition lifelong young a Autismthat is affectscommunication, socialunderstanding behaviour and sponsors talkaboutautism.org.uk people.TalkTalk 100 in 1 in talk encouraged to are parents professionalsand where experiencesknowledge and aboutshare autism and more children. autistic for outcomes educational best the achieve to total a raising milestone; remarkable a celebrated we 2011 In of School. TreeHouse their Autism and position our use initiatives,other to and aim these Throughwe supportengage, empowerand communitiesus. to the around (1) (2) Involvement and recognition Annualrecognition schemesGroup; continue acrossthe business area. business to our in Heroes” “TalkTalk suchas important an is performance individual and teams Recognising acknowledging have culturewhoby those our of feature colleagues. customertheir or the extrafor the mile gone actsRecognitionability X-Factor includedinvite our has to people our enable to and staff our for perform to sites our to to participationcompetitions. in opportunityThe part be of to TalkTalk. at initiative popular very a is show TV biggest Britain’s Employee benefits benefits of range comprehensive our extend to able were We the schemes in includeSave-As-You-Earn to year the during participate theemployeesIreland,to enabling and in UK performanceCompany. the of offer our to able be to delighted were we year Duringthe
results.
Liverpool family concerts We support the world-renowned Royal Liverpool Philharmonic Orchestra through our sponsorship of their Family Series. Employee Champions at our Warrington, Irlam and Preston sites made sure that over 1,200 of our staff and customers enjoyed free concerts at Philharmonic Hall. Philippines, together twice a year year a twice together Philippines,
participate in key messages around the participate messagesaround key in
year and full year performance year full and andyear
include their details. This is reinforced by ‘Team ‘Team by reinforced details.include their is This
information with their teams in a consistent a manner. in informationteams with their
management and every single person in the Company, Company, the in person single every and management
UK and Ireland. These forums are integral to disseminating disseminating to integral are forums These Ireland. and UK
get to hear and hear to get
management team right through to nationalmatters to across through right managementteam the mattersgathering informationon feedbackand suchas development. people and levels employment changes, legislative Forums that provide an important an provideForums communicationthat for basis consultation and business changematters.on Meetings are leastquarterlyat issues raised held basedwith site deal and local representativesthe employee and our through Company’shalf Employee forum five Local EmployeeNational Forumand Employee a have We senior outsourceincluding serviceour callcentresprovidersin at the and India Africa, South to Talk’, a weekly set of messages designed to enable managersenable messages designedto of weekly set a Talk’, share to ExecutiveChief the Hands’eventsbring Officer, ‘All Our account of the Chief Executive Officer’s experiences, with key key with experiences, Officer’s Executive Chief the of account to community.free are Employees TalkTalk the messagesto anonymously blog they commentsshould postthe their on to not prefer Keeping our people informed of developmentsthe of informedand people our Keeping two in engage Company’sprogress,whilstto them enabling at year this communication,feature way strong a been has weeklypersonalised becomea has Blog’ ‘Dido’s TalkTalk. items highlighted in order to enable them to work with their their with work to them enable to order in highlighted items engagement. improve to teams Communication registered an engagement score of 74%. engagementof score an registered regarding feedback with data engagement receive Managers informationsummaryThis includes teams. a their with key a variety topics.a engagement, Employeeof extent to the psychologically whichemployeesare emotionally and attachedwork, their positively to influences customer satisfactionproductivity. and lastsurveyOur results Engagement of way engagementregular Pulse surveysOur a are acrosspeople our views of informationthe gathering on 24 Overview Performance review Governance Financial statements Other information 25 26 28 32 38 Corporate governance Corporate report remuneration Directors’ Other statutory information Board and advisors and Board Governance Directors’ Report:Directors’ 26
Board and advisors
John Gildersleeve Senior Independent Non-Executive Director
Introduction Board balance and independence The Board is committed to the highest standards of corporate The Board has nine members, four of which, excluding the governance and in accordance with the Listing Rules of the UK Chairman and Deputy Chairman, are considered independent Listing Authority the Board confirms that except to the extent Non-Executive Directors. These are John Gildersleeve, our stated below, the Company has throughout the year and as Senior Independent Director, John Allwood, Brent Hoberman at the date of this annual report, complied with the provisions and Ian West. Jessica Burley was also an independent set out in Section 1 of the Combined Code on Corporate Non-Executive Director during the period until she stood Governance published by the UK Financial Reporting Council down on 16 November 2010. Ian West was appointed a (‘FRC’) in June 2008 (‘Code’). Non-Executive Director on 8 February 2011. Roger Taylor, the Deputy Chairman, is not considered independent given This section of the annual report together with the Directors’ he was previously Chief Financial Officer of The Carphone report and Directors’ remuneration report provide details Warehouse Group PLC from the which the Company was of how the Company has applied the principles and complied demerged in March 2010. with the provisions of the Code. The Chairman and Executive Directors have service contracts UK Corporate Governance Code that can be terminated by either the Company or the Director On 28 May 2010 the FRC published a new UK Corporate on 12 months notice. Governance Code (‘New Code’) to replace the Code. The New The Non-Executive Directors have three year periods of Code applies to reporting periods beginning on or after appointment. All the independent Directors have a three 29 June 2010. It will therefore apply to the Company for the month notice period with no compensation for loss of 2012 financial year and not the financial year covered by office. Roger Taylor has a six month notice period. this report. The Board has however initially reviewed the New Code and Points of non-compliance with the code has decided to voluntarily adopt the following principles ahead This is the first annual report of the Company since the demerger of the implementation of the New Code. First, all Directors and, as stated in the Company’s prospectus issued as part will stand for reappointment annually at the Company’s Annual of the demerger as published on the Company’s website General Meeting (‘AGM’) starting from the 2011 meeting. (www.talktalkgroup.com), Charles Dunstone, Chairman, was Second, the performance of the Board will be externally not independent on his appointment due to the fact that he facilitated at least every three years, with the first review to was previously Chief Executive Officer of CPW and also has a be carried out no later than during the 2014 financial year. significant shareholding in the Company. The Board believes that the appointment of Charles as Chairman benefited the Group given that Charles was both the founder of CPW, in which the Company was created, and his knowledge of the market place is important to its future development. Major Shareholders were also consulted prior to his appointment.
TalkTalk Telecom Group PLC | Annual Report 2011 Overview Performance review Governance Financial statements Other information 27
Annual Report2011
| TalkTalk Telecom Group PLC PLC Group Telecom TalkTalk during the course of the year as it is the Board’s Board’s the is it as year the courseof the during
year of operation since the demerger of the Group. the of demerger operation sincethe of year
commitment to the role. commitmentthe to other the with met also Director Independent Senior The effectiveness Chairman’s the assess to Directors Non-Executive Directors. Executive of views the account into taking aware made is Board the that ensures Secretary Company The informationto laws,other appropriate new regulationsand of Directorscontinually all that their update ensure to Group the to order in familiarityknowledge Group and and skills the of roles. fulfil Additionally the accesstheir to each has Director adviceservices and Company Secretarythe has of also and independent abilityexternaltake the advice to required.if Performance evaluation and continued development external formal a subject been to not has Board The evaluation first internal an subjectbeen to has member EachBoard balance the where performanceyear, the during review skills, experienceDirectorknowledgeeachwasof and of undertakenreviewed.the was This of membereach by completing Board detailedquestionnaires. resultsof The Independent Senior Chairman, the by analysed were these whole. a as Board the Directorand performancepartAs the ability of the Director, eachreview of particular in Non-Executive the demonstrateDirectors, the to assessed.was role commitmentthe time confirms to required Chairman the evaluation performance this of result a As appropriate the Directorsre-electionseeking AGM the of the eachat that demonstrated has and effective be to continues
the Board by the Group’s InvestorRelations Group’s the by Board the
withsignificant Shareholders.
views of the Group. To this end regular reports are are reports regular end this To Group. the of views the meetings during the period, save for Roger Taylor Taylor Roger for save period, the during meetings the
to the Group’s Executive committee,Group’s the to whichcomprises
of
West (who attended the sole remaining meeting following following meeting remaining sole the attended (who West
how the Group operates. Group the how
meetings It is important to the Group that all Directors understand understand Directors all that Group the to important is It external to provided reportsoutput coveringthe of broker and Director, other independentother Non-Executive Directors. certaindelegated also has Board matters the statedAsbelow, Committees. Board of number a to meeting. This ensures that any concernsand raisedany that canbe meeting. ensures This meetings.discussed SeniorBoard The formal outside of IndependentattendsDirector also itsessions where these discussmatters any possible, withto also the required, if is of ChairmanNon-ExecutiveregularlywithThemeets just the every Board other to prior evening Directors, the usuallyin All Directors receive papers in advance of meetings.advance Directorsof Theyin papersAllreceive Group’s reports the regular receivemembersof also and meetingsso Board at present invitedto Executiveare team Non-Executive the that knowledgegood a Directors form It is important to the Board that Non-Executivethat important Board is It the to Directors abilityinfluence the appropriately. challenge and have to Non-Executive all end thorough this a given Directorsare To priority discussions.take Board and in Group the induction to all meetings until her resignation on 16 November 2010) and and 2010) November 16 on resignation her until meetings all Ian 2011). February 8 on appointment his each prior a to due 2010 September 30 on meeting the from (absent on meeting the from (absent Goldie David attended meeting), (who arranged Burley Jessica leave), annual to due 2010 July 27 The Board had six formal meetings during the year as well as year the meetingsduring formal six had Board The certain approving for appropriate were as meetings other as attended Directors All Shareholders. to announcements FinancialOfficer), (Group Commercial Director)David Goldie Group. acrossthe employeesfrom drawnsenior other and strategy,Reserved matters Group’s includethe approving planning. term longer other budgets and annual How the Board operates reserved has certain Board The matters, delegated and others Executive(Chief Harding Dido Officer), (Chief Stirling Amy believed that there was sufficientwas there that believed Board independence the on independentother Non-Executive the enable stillto Directors decisions.influence Board appropriately any to challenge and and this has been the situation for all of the financial year the of all situation the for been has this and February 8 and 2011 November2010 between for except16 the Jessicato prior resignationof Burleyand the following shortWest. appointmentDuring this Ian of Boardperiod, the At least half of the Board excluding the Chairman are independent independent are Chairman the excluding Board the of half least At 28
Corporate governance
Chairman:
Charles Dunstone (46) Skills and experience: Charles founded the External appointments: Charles is Chairman of the Carphone Warehouse, and created TalkTalk Prince’s Trust, Chairman of Carphone Warehouse in 2002. Since that date he has directed the Group plc and a Non-Executive Director of both development of TalkTalk to become one of The Daily Mail and General Trust PLC and the leading fixed line telecommunication Independent Media Distribution PLC. businesses in the UK.
Executives:
Dido Harding (43) Amy Stirling (41) David Goldie (47) Skills and experience: Dido joined TalkTalk Skills and experience: Amy has been the Chief Skills and experience: David joined TalkTalk when in February 2010. Prior to that date Dido was Financial Officer of TalkTalk since 2006, having the Opal business was acquired by Carphone Sainsbury’s convenience director, having been been with the Carphone Warehouse since 2000. Warehouse in 2002. David has over 25 year’s appointed to Sainsbury’s operating board in Amy has played a key role in the management and experience in the telecommunications industry March 2008. Dido joined Sainsbury’s from Tesco integration of the significant businesses acquired and has been instrumental in the establishment PLC where she held a variety of senior roles. by TalkTalk over the past six years. and growth of the Group. External appointments: Dido is a Non-Executive External appointments: Amy has no external External appointments: David holds a Non-Executive Director of The British Land Company PLC. director appointments. role at The Fulwood Academy and is also a Board member of the Northwest Regional Development Agency.
Non-Executives:
Roger Taylor (46) John Gildersleeve (66) Ian West (47) Skills and experience: Roger was Chief Financial Skills and experience: John was an Executive Skills and experience: Ian has been involved in Officer of Carphone Warehouse from January Director of Tesco PLC, and joined the Board the telecoms and media sector for over 20 years. 2000, and played a key role in the creation and of Carphone Warehouse in June 2000 before He was at BSkyB for 11 years and held various growth of its group including TalkTalk. becoming Chairman in July 2005. roles including managing director of the subscription business and also managed the External appointments: Roger is also Chief Executive External appointments: John is a Non-Executive introduction of Sky Digital.Since he left in 2000 Officer of Carphone Warehouse Group plc. Director of Carphone Warehouse Group plc he co-founded Top Up TV in 2003. and The British Land Company PLC. External appointments: Ian is a supervisory board member of Kabel Deutschland. John Allwood (59) Brent Hoberman (42) Skills and experience: John was the Chief Skills and experience: Brent co-founded Operating Officer and latterly Group Finance lastminute.com in 1998, and was their Chief Director of Mecom Group plc, and prior to this Executive Officer until it was sold in 2005. he was managing director of Telegraph Media Brent has subsequently founded and is Group Ltd, Chief Executive of Orange UK and Chairman of mydeco and made.com. of Mirror Group plc. External appointments: Brent is Governor of External appointments: John is a member of the University of the Arts College, London, and a Exeter University Council and a Non-Executive Non-Executive Director of Guardian Media Group Director of Carphone Warehouse Group plc. and TimeOut Group. Brent also co-founded PROfounders Capital which is an early stage digital venture fund.
Company Secretary Advisors Tim Morris Corporate Brokers: Principal Bankers: Credit Suisse (Europe) Ltd, Barclays PLC 1 Cabot Square, London, E14 4QJ HSBC Bank plc ING Bank NV Barclays Capital Royal Bank of Scotland Group PLC 5, The North Colonnade, Canary Wharf, London E14 4BB
Registrar: Auditor: Equiniti Limited, Deloitte LLP, Aspect House, Spencer House, 2 New Street Square, Lancing, West Sussex, BN99 6GU London, EC4A 3BZ
TalkTalk Telecom Group PLC | Annual Report 2011 Overview Performance review Governance Financial statements Other information 29 2010 0.1 3.1
1.8 1.8 0.7 0.6 0.6 0.4 0.2
– – 2011 0.1 0.1 0.1 1.0 0.7 0.8 0.2 Annual Report2011
|
TalkTalk Telecom Group PLC PLC Group Telecom TalkTalk which a case by case decision is required. In order In caserequired. decision case is by which a
endorsed by the Board. the endorsedby for are discussed with the Chairman of the Committee. discussedthe Chairman withof are the external auditor’s are excluded; for which the external whichthe for excluded; externalare auditor’s
safeguard the auditor’s objectivityauditor’s the safeguard independence, and Make recommendations to the Board in relation to the appointment, reappointment and removal of the external auditor and to approve their remunerations and terms of engagement; Review and monitor the externalauditor’s independence and objectivity and the effectiveness of the audit process, taking into consideration relevant UK professional and regulatory requirements; and Review the Company’s policy onthe engagement of the external auditor to supply non audit services. In this context the Committee’s remit requires it to report to the Board identifying any matters in respect of which it considers that action or improvement is needed and to make recommendations as to the steps to be taken.
Taxation services Other services All other services Group auditor’sTotal remuneration was auditservices non provisionof the by policyTheto relating external specifiesthe auditor which from work the types of the Committee; the withoutengagedto can auditorbe referral and to the by monitored is auditfees to auditfees non of ratio the below Committee.fifty excessof in proposed work Any Amounts percent Committee. the to referred is fee audit the of this servicesaccrued or for paid the statementfrom fees A of below:out set periodis external the duringauditor £m Fees payable to the Company’s auditor for the audit of the Company’s annual accounts Audit of the Group and its subsidiaries pursuant to legislation Audit services provided to all Group companies Reporting in respect of capital market transactions Other assurance services • • • assessments undertaken,the review of and light In the be LLP Deloitte that Board the to recommended Committee recommendationThis Company. the of auditor as retained
during the financial year up until her resignation her until up financial year the during
stated above is not consideredindependent. not is stated above All
Committeeextensive membershave commercial access to the Committee the access meetingsand formal to during November 2010. John Allwood is the member withmember the Allwood John is November2010. FinancialOfficer management senior attendother and Company’sfinancial performance,reviewing including
Gildersleeve and Ian West.GildersleeveJessicaIan alsoand Burley was
recent and relevant financial experience (see financialDirectors’relevantexperience (see and recent 16
the Committee. the auditorsexternalhaveinternal The and the
Monitor and review the effectiveness of the Company’s internal audit function; to make recommendations to the Board; Review the Company’s arrangements by which employees may raise concerns in confidence; the them; in contained judgements reporting financial significant Review the Company’s internal financial controls and its internal control and risk management systems and Monitor the integrityfinancial Monitor the the the statementsof of announcements formal to relatingany and Company,
member
• • • embraced the Code requirements to: to: Coderequirementsembraced the • Committee,managementabsence attendees.of the in consideredcalendaritems formal period,of the Duringthe AuditeachCommittee at withincyclemeetingannual each of direct privatediscussion have withthe to them for aside set is time the Committee the invitationCommittee. meetingsby the of Company’sRepresentatives externalthe other and of auditor and Legal Treasury, and executivesFinance,senior from Tax BusinessAssurance invitationattend meetingsalso by these requirements of the Code in respect of the Committee the respect Codeof in were the of requirements undertakenmet.workCommittee The the describedby is Report.sections followingthis within the of Group’s The Chief JessicaWest’sappointment.Ian Burley’s resignationand any Committee on the ChairmanBoard Theof the updates meeting Board significantthe arisen at have may issues that all Committeeeachfollowing year, meeting. During the the year. All membersattendedAll meeting,each althoughonly year. the placeafterWest.appointment Ian took the meetingof one Committee no were ofmeetings betweenThere date the biographies). Roger Taylor is also a member but for the butfor member a also is Taylor Roger biographies). reason of experience.CommitteeduringThe times three formally met John a on the Audit Committee independent following the comprises currently Committee The Non-Executive Allwood John (Chairman), Directors: The Board has established four Committees: Audit, Remuneration, Remuneration, Audit, Committees: four established has Board The the by required as firstCompliance; Nomination three the and within Group compliance the the of ensure fourth Code, the to regulatory whichthe operates.itenvironment in Board Committees 30
Corporate governance continued
Certain non audit services are pre-approved by the Nomination Committee Committee depending upon the nature and size of the service. During the year the Committee comprised the following Tax services principally comprise technical advice associated Non-Executive Directors: John Gildersleeve (Chairman), with relevant UK and international fiscal laws and regulations Roger Taylor and Ian West. Jessica Burley was also a member and, in particular, assessment of the potential implications during the financial year up until her resignation in November of proposed corporate transactions or restructuring. Other 2010, after which John Allwood took her place on an interim services principally represent advice provided and project basis. The Committee met once during the year in January management support received for the set up of the Group’s 2011 and each member attended that meeting. finance shared service function. Having undertaken a review The Committee is responsible for succession planning of the non audit related work, the Committee has satisfied at Board level, overseeing the selection and appointment itself that the services undertaken during the year did of Directors, regularly reviewing the structure, size and not prejudice the external auditor’s independence. composition of the Board and making its recommendations At each of its meetings the Committee reviewed and considered to the Board. It assists in evaluating the commitments of reports on Risk and Business Assurance on the status of the individual Directors and the balance of skills, knowledge Group’s risk management systems, findings from the internal and experience on the Board. In this regard, it proposed audit function concerning internal controls, and reports on the the appointment of Ian West following the resignation of status of any weaknesses in internal controls identified by Jessica Burley. the internal or external auditor. The Chairman of the Committee updates the Board following The Chairman of the Committee updates the Board following each Committee meeting. each Committee meeting. The Committee’s terms of reference, which are available on The Committee’s terms of reference, which are available on request from the Company Secretary and are published on the request from the Company Secretary and are published on the Group’s website (www.talktalkgroup.com), comply with the Code. Group’s website (www.talktalkgroup.com), comply with the Code. Regulatory Compliance Committee Remuneration Committee The members of this Committee are John Gildersleeve The Committee currently comprises the following independent (Chairman), Dido Harding (Chief Executive Officer), David Non-Executive Directors: John Gildersleeve (Chairman), Goldie (Group Commercial Director), Tim Morris, (Company Brent Hoberman and Ian West. Roger Taylor is also a member Secretary) and other senior executives of the Group. There of the Committee but for the reasons stated in this report were four formal meetings of the Committee during the year. he is not considered independent. Jessica Burley was also a The purpose of the Committee is to provide the Board with member during the financial year up until her resignation on visibility of how the Group remains compliant with those 16 November 2010, after which John Allwood took her place regulations affecting its businesses from time to time. Its on an interim basis prior to the appointment of Ian West. members therefore include those senior executives who The Committee met formally three times during the period are operationally responsible for implementing permanent and each member attended every meeting (save for Roger changes necessary to ensure the Group remains compliant. Taylor, who did not attend the meeting on 27 January 2011 Such members are accountable to the Committee and the because of a prior engagement). Other Directors including Board for the successful delivery of such changes. the Chief Executive Officer, the Company Secretary, the This Committee now meets ahead of each formal Board Group Director of Human Resources, and advisors attended meeting and other meetings are scheduled at other times by invitation of the Committee. A detailed description of the depending on those regulatory matters currently affecting Committee’s remit and work during the period is contained the Group. in the Remuneration Report on pages 32 to 38. The Chairman of the Committee updates the Board following Risk management and internal control each Committee meeting. The Company has established a risk management program that assists management throughout the Company to identify, The Committee’s terms of reference, which are available assess and mitigate business, financial, operational and on request from the Company Secretary and are published on compliance risks. The Board views management of risk as the Group’s website (www.talktalkgroup.com), comply with integral to good business practice. The program is designed the Code. to support management’s decision making and to improve the reliability of business performance.
TalkTalk Telecom Group PLC | Annual Report 2011 Overview Performance review Governance Financial statements Other information 31
Annual Report2011
| TalkTalk Telecom Group PLC PLC Group Telecom TalkTalk and a resolution to re-appoint them will be proposed proposed be will them re-appoint to resolution a and
For more information visit: www.talktalkgroup.com principalimpartcommunication to used media
ask questions.ask the forthcoming the AGM.
matters, organises presentations for analysts and institutional institutional and analysts for presentations organises matters, withdialogue regular of program full a investors. is There institutional major Shareholders,managers, fund analysts, creditinvestors, Chairmanand which the uponbrokers retail Board at updates receivesregular Board the that ensures receivesperiodicreports also meetings. Board The on performancethe All investors’the Company. views of the of Non-ExecutiveChairmanand particular,the Directors in and, withmeetmajor availableto are IndependentSenior Director, CompanyThe required. Shareholders,suchmeetingsifare communicate the withto Shareholdersthrough also plans accountthe an of Chairmangive will which the AGM,at of review a and lastyear, the business over the of progress Shareholders for opportunity the provides and issues, current to Further the business financialavailable on information and is website,(www.talktalkgroup.com). Group’s Auditor Deloitteincorporation on haveappointed LLP and were officecontinue willingnessin their expressedto the as auditor at Communication with investors important is itbelievesbusiness explain Board The to Company’s the developments resultsfinancialto and concerns. shareholder any understand to and Shareholders The (including releases news Shareholdersare informationto all In publications. Company and announcements) price results no that ensure to taken is care communications, such sensitivereleased.information is ExecutiveChiefThe Officer Chief and Financial Officer have responsibilityother supportedlead investorrelations. are They for amongst who, Director Relations Investor dedicated a by
was
Board and Audit and Board
each
corporatefunctions. risk A
update is provided atprovided is update
and risk assessmentsriskranging,wide covering been have this is possible and to the extent considered appropriate appropriate considered extent the to and possible is this
managing key risks and include the risk managementrisk includethe risks and key managing
main business unitsmain and
the annual reportannual financial the and this statements and
This is supported by an ongoing process for identifying, processongoingfor supported is an This by Group, the risksby faced the managingevaluating and Business Assurancethe AuditInternalfunctions.by and of the systems of risk management and internal controlsinternalin systemsmanagementrisk and the of of approval the of date the to up and year operationthe during of AuditCommittee the Board. by the approved and and not absolute assuranceabsolute not againsterrors, materialand losses, regulations. and law of breaches or fraud effectiveness the of review annual an conducted has Board The are also refined as necessary to meet changes in the Group’s Group’s necessary the as refined in meet changes also to are associatedbusiness and risks. controlsystemsinternal The of failure of risk the eliminate than rather manage designedto are reasonable provide only can They objectives. business achieve to year and up to the date of approval of the annual reportannual the and of approval of date the to up and year financial statements. effectiveness The these systems is of AuditperiodicallyCommittee the by reviewedaccordance in systems These Report. Turnbull the in guidance revised the with and above.processesout set placethethroughout in controlwere systemsinternal The of of internal controls and for reviewing their effectiveness.reviewing their for controls internaland of The Executive to responsibilitydelegates management Board the designing,systems.monitoring operatingthese and for The identifying,process of a on based systems are evaluating by the Board taking account of costs and benefits. Changes in Changes benefits. and costs of account taking Board the by matrixriskare the changesto risks and key statusthe the of Meeting.reported Board each regularlyat system Group’s the for responsibility overall have Directors The financial, operational and compliance risks. Associated action action Associated risks. compliance and operational financial, place in put also are mitigatethem controlsto and plans where the report Committeemeeting. strategic, key list of outputassessmenteach The a of is risks arising from the regulatory environment, strategy, counter counter strategy, environment, regulatory the from arising risks major with both associated change organisational and parties acquisitions.projects and managementriskTheprocess to equally applied being Group, the throughout operates risk workshops and reviews within each of the main functions main the workshopsriskreviewswithin of eachand business key of assessment an in culminating year, past the in Executivemanagement. the riskskey by Directors and These AssuranceAuditInternalfunctions. and good a have partsGroup all the that of ensure To conducted have understanding risk, team of this membersof The risk management program is supportedBusiness is the managementrisk The program by 32
Directors’ remuneration report
Introduction Remuneration policy This Remuneration Report has been prepared in accordance During the year ended 31 March 2011 the Board undertook with the Large and Medium sized Companies and Groups a review of Group remuneration to ensure that the overall (Accounts and Reports) Regulations 2008 (‘Regulations’) remuneration practices achieved the strategic aims of the issued under the Companies Act 2006 (‘Act’) and the Group. This took account of the following: Combined Code on Corporate Governance published by • Market conditions; the UK FRC in June 2008. The constitution and operation of the Remuneration Committee are in compliance with • The demerger from The Carphone Warehouse Group the Code. PLC and the listing of TalkTalk Telecom Group PLC on the London Stock Exchange; In framing its remuneration policy the Committee has given full consideration to the matters set out in Schedule A of • The need to ensure that remuneration policy was in line the Code. As required by the Regulations, a resolution to with the risk profile of the Group set by the Board and was approve this report will be proposed at the AGM to be held consistent with an overall policy to encourage long-term on 28 July 2011. The Regulations require the Company’s sustainable performance and the ‘value player’ positioning auditor to report to the members on the ‘auditable part’ of of the Group in its marketplace; this Report (marked *) and to state, in their opinion, that • The need to help reinforce the Group’s strategy for growth; this part of the Report has been properly prepared in accordance with the Act. • The requirement to provide a strong link between individual and business performance and ensuring Remuneration committee alignment between employees and the delivery of The remuneration policy is set by the Board and is described value to Shareholders; below. The Remuneration Committee, within the framework • The requirement to have clear and stretching targets; of this policy, determines individual remuneration packages for the Executive Directors and the Chairman. The terms of • The need for the Remuneration policy to be tailored to reference of the Committee are available on the Group’s the Group’s circumstances; website (www.talktalkgroup.com) or on request from the • The requirement for the Group to recruit, retain and Company Secretary. motivate talent; Remuneration for Non-Executive Directors is determined • Cost-effectiveness; and by the Board, taking into account the commitments and responsibilities of the role. • Reflect corporate governance best practice. The Committee currently comprises the following independent Non-Executive Directors: John Gildersleeve (Chairman), The review concluded that rewards need to be designed Brent Hoberman and Ian West. Jessica Burley was also a to attract and retain individuals of high quality who have member during the financial year up until her resignation the requisite skills and who are incentivised to achieve in November 2010. Roger Taylor is also a member of the high levels of performance. This requires packages to be Committee but for the reasons set out in the Corporate market-competitive and capable of rewarding exceptional Governance section of this annual report he is not performance. The approach is to set fixed remuneration considered independent. at market median levels and to offer variable rewards, linked to the performance of the Group, which can provide significant Except when matters concerning their own positions are being overall levels of remuneration for exceptional performance considered the Chief Executive Officer and the Group Human and shareholder value creation. Resources Director are normally invited to attend the meetings of the Remuneration Committee to assist the Committee. In order to closely align the interests of the Executive Directors The Committee may discuss any matter affecting the and Shareholders, the Company requires Executive Directors Chairman without the Chairman being present. to build and retain a shareholding in the Company of at least 200% of their annual salary. The Company may, in calculating The Committee has access to independent advice where it this percentage, take into account Executive Directors’ considers it appropriate. External advice was used in relation participation shares issued under the TalkTalk Group Value to share schemes. Enhancement Scheme, a summary of which is set out later in this report.
TalkTalk Telecom Group PLC | Annual Report 2011 Overview Performance review Governance Financial statements Other information 33 Annual Report2011
| TalkTalk Telecom Group PLC PLC Group Telecom TalkTalk rate of interest in order to fund such a purchase. purchase. a such fund to order in interest of rate in Ireland. in
statements.
Committee. It is the intention of the Remuneration Committee.the of intention the is It
DSOP and SAYE can be found in note five to the to five note in found canbe SAYE and DSOP 200 per cent of base salary, unless the Board determines determines Board the unless salary, base of cent per 200
Participation Shares that are initially purchased by the the by purchased initially are that Shares Participation
and £250 for a specified years. a five or period,£250for three and exercised and the resultingParticipation the and be exercised may Shares
base salary. base Executive UK All Board. employeesofthe Directors and the
TalkTalk who will not participate in the TTG VES. Other grants grants Other VES. TTG the in participate not will who TalkTalk bonus is payable after expiration of the period.afterpayable the is bonusexpiration of
and performance conditions as set out in note five to the to performance five and note conditionsin out set as financial options granted statements. be employee will No over cent exceptionalthatcircumstances per exist which 300 justify exceeding exceed not shall options case which in limit, this of SchemesSAYE share Save-As-You-Earn a is UK the Schemein SAYE The Schemes SAYE The HMRC. by approved is and scheme option committee authorised duly a or Board the by administrated are of participating and be will companiesGroup within the TalkTalk have they as long as Scheme SAYE the in participate to eligible participate qualifying the a in employedfor been period. To SAYE an into must employeeeligibleenter Scheme, an SAYE monthlycontributions make to contractbetween agree and £5 A SAYE the under shares TalkTalk acquire to Options granted Board the priceby optiondetermined an have Schemewill the cent 80of per of higher the than less not whichbe will value.nominal quotationtheir market pricemiddleor TalkTalk placefor in put been schemesimilarhas A employees TTG the operations of and Furtherfeatures the detailsof VES, financial When the performance conditions have been satisfied and the the and satisfied been have conditions performance the When Participationvests purchasedbythe award be may Shares mayoptions the or Shares TalkTalk of issue the by TalkTalk be Shares. TalkTalk of issue the by TalkTalk purchasedby Any such and value market at acquired be will participants a at participantTalkTalk from loan offered a be will commercial Discretionary Share Option Plan DiscretionaryThe (‘DSOP’)OptionPlan Share designedto is certain medium-termincentive for a plan provide employees of special circumstancesin made discretion be the may at of participants Committeeyear, may one that,any generallyin suchschemes. of The one under award an receiveonly continuing subjectemployment optionsis to the of exercise
policy of the Board to review salariesannually. review to Board the policy of a ‘balanced scorecard’ that was a blend of financial ‘balancedof blend a scorecard’a was that
designed to enable participants to share in the incremental the participantsenable in designedshare to to Basic salary, benefits and pension contribution (fixed); Annual performance bonus (variable); and Share options and performance shares (variable).
TalkTalk Group Limited, the holding company for the TalkTalk TalkTalk the for company holding the Limited, Group TalkTalk business(‘Participation Shares’). 31 March 2010. Each award will entitle a participantentitlewill Each a award eitherto 2010. March 31 nil granted be or shares separate of number fixed a purchase separate a (‘options’)optionsacquire value par to priced or subsidiary the caseeachin company, in shares class of is valuation,opening an as excessof the in Group the of value Remuneration Committee,the by determined firstwith the ended year financial the of start the at being valuation opening the Directors who served during the year are as follows: as are Directors servedyear who the the during Group Enhancement Value TalkTalk Scheme Enhancement Scheme(‘TTG Value Group VES’) TalkTalk The Share-based incentive plans amountsfor include any emolumentsnot showndo Aggregate Company the ordinary acquire in shares optionsto of value the optionsfor Directors. the the Details of by held or to granted structurebetweenexcellent andlink an providesreward creation the in performance and improved Group the of further of value.shareholder Tiscalicustomer customerintegrationprogram, migrations), satisfactionemployee and innovation. and measures RemunerationThe Committee satisfied bonusis the that bonus scheme for the year ended 31 March 2011 was based based was 2011 March 31 ended year the for scheme bonus on EBITDA,Headline example, Group (for measures operating example, the projects strategic (for revenue), cashflow, free Cash bonuses are governed by performance governedby Cashbonusesare conditions set Remuneration Committee.the by Maximumvariableawards exceptionalperformance. for only paid maximumThe are salary.200basic Thecent is of per paid canbe that bonus TalkTalk on the London Stock Exchange in March 2010. It isIt LondonStockExchange2010. March the in on TalkTalk the Annual performance bonus Salaries and benefits demerger context the the of in benefits set Salariesand were listing of the and PLC Group CarphoneThe Warehouse from • • • The main fixed and performance and fixed elementsmain related Theof Directors Executive to awarded be can that remuneration follows: as are Components of remuneration 34
Directors’ remuneration report continued
Aggregate remuneration* Pension contributions* The total amount of Director’s1 remuneration and other The schedule below sets out payments by the Group to benefits (excluding pension contributions) were as follows: defined contribution money purchase pension schemes on behalf of Directors. A fixed proportion of salary is paid by Taxable 2011 2010 the Company together with either a fixed proportion by the Basic benefits Bonuses Total Total Director £000 £000 £000 £000 £000 Director or no contribution by the Director and both amounts Executive are invested on behalf of the Director. Pension benefits are (4) then funded by the total investment. Levels are reviewed D Harding 500 17 199 716 249 annually against published market data. None of the Directors A Stirling(3) 375 9 149 533 152 was a member of a defined benefit pension scheme during D Goldie(3) 325 15 130 470 133 the year. Pension entitlements are based on basic salary only. Non-Executive 2011 2010 C Dunstone(3,5) 360 2 – 362 4 Director £000 £000 R Taylor(3,6) 75 – – 75 15 D Harding 51 – J Gildersleeve(3) 73 – – 73 14 A Stirling 19 11 D Goldie 65 4 J Allwood(3) 60 – – 60 12 Total 135 15 J Burley(1,3) 40 – – 40 12 B Hoberman(3) 50 – – 50 10 I West(2) 8 – – 8 – External appointments The Board supports Executive Directors holding Non-Executive Aggregate Directorships of other companies and believes that such emoluments 1,866 43 478 2,387 601 appointments are part of the continuing development of the Notes: Executive Directors from which the Company will ultimately (1) Resigned 16 November 2010 benefit. The Board has reviewed all such appointments and those (2) Appointed 8 February 2011 appointments that the Board believes require disclosure pursuant (3) Appointed 20 January 2010 (4) Appointed 20 January 2010 and remunerated as a Director from to the Code are set out below. The Board has also agreed that 24 February 2010 the Directors may retain their fees from such appointments. (5) Basic salary for the prior year relates to the period from 29 March 2010 to 31 March 2010. Remuneration from 20 January 2010 to 28 March 2010 Currently, Dido Harding is a Non-Executive Director of The was borne by CPW and recharged as part of the CPW costs set out in British Land Company PLC for which the annual fee is £64,600. note 2 to the financial statements. David Goldie is also a Board Member of the Northwest Regional (6) CPW had a medium-term incentive plan for Roger Taylor which rewarded increases in the market capitalisation of this Group between June 2009 Development Agency for which he received a fee of £8,666 and December 2010. This incentive plan has been measured using the during the year. combined share price of the Group and Carphone Warehouse Group plc and the maximum payout of £1.0m was made during the period. This amount Charles Dunstone is also Chairman of Carphone Warehouse was accrued as part of the demerger and is not included in the above. Group plc which the Board believes is a significant other commitment for him.
Total remuneration for 2010 above relates only to that paid Fees for Non-Executive Directors to Directors for their role as Directors of the Company. The fees for each of the Non-Executive Directors are determined Charles Dunstone, Roger Taylor and John Gildersleeve by the Board after considering external market research. The were Directors of CPW for which they respectively received Chairman’s fee is £360,000. The Deputy Chairman’s fee is total remuneration of £1,733,781, £1,167,426 and £395,652 £60,000. Non-Executive Directors receive a basic fee of for the period to 28 March 2010. These Directors were then £45,000 plus additional fees of £15,000 for Chairing the Audit remunerated by the Company from 29 March 2010. Committee, £10,000 for Chairing the Remuneration Committee and £5,000 for Chairing the Nomination Committee. A fee of Amy Stirling and David Goldie were employees but not Directors £5,000 is paid for membership of the Audit Committee, £5,000 of CPW. Amy and David were remunerated by the Company for for membership of the Remuneration Committee and £5,000 their roles as Directors of the Company from 20 January 2010. for membership of the Nomination Committee. The Senior John Allwood was not a Director of CPW and was remunerated Independent Director receives an additional fee of £7,500. by the Company from 28 January 2010, when he was appointed The Non-Executive Directors do not take part in discussions as a Director of the Company. on their remuneration. Each of the Non-Executive Directors has a letter of appointment substantially in the form suggested by the Code, and each has a three month notice period with no compensation for loss of office. The Company has no age limit for Directors. The dates of each contract are set out on page 38.
TalkTalk Telecom Group PLC | Annual Report 2011 Overview Performance review Governance Financial statements Other information
6 6 35 10 date 2010 2010 2010 £000 Expiry 461 284 284 53.5 % Share % Share 1,029
6 6 10 04/12/2020 04/12/2020 2011 2011 2011 £000 295 295 480 53.5 Annual Report2011 % Share % Share
1,070 | from Exercisable 01/09/2012 01/09/2013
– – share £ Exercise price per TalkTalk Telecom Group PLC PLC Group Telecom TalkTalk
2011 At March 31 472,440 236,220 236,220
– – – Lapsed during the year
– – – the year Exercised during
Granted 472,440 236,220 236,220 during the year
– – – or date of appointment At March 31 2010 Discretionary Share Option Plan TalkTalk Group schemes TalkTalk Value Enhancement Scheme statements.
(“TSR”) of five per cent over the performance period. Full details of the scheme are disclosed in note five to the to five (“TSR”) note disclosed performance in the scheme are over the cent per five details of period.of Full
provide long-term incentives to senior management. These were called the TalkTalk Group Value Enhancement Scheme Value Group TalkTalk management.called senior incentives the long-term provide were These to
For awards made in September 2010 the performance conditions are based on achieving a compound Total Shareholder performance the compound achieving Total a on conditions based 2010 are September in made awards For Return financial Total forTotal D Harding Director D Harding b. table: following the shownin ExecutiveCompanyDetails are of the priced in Directors’ optionsnil conditionalreceive to right R Taylor plc. Group Warehouse Carphone of management senior other by held is pool VES TTG CPW the in share percentage remaining The The Directors had the following percentage share in the CPW TTG VES at 31 March 2011: March CPW31 the at TTGVES in percentagefollowing share the Directors Thehad Director Interest on outstanding loans was charged at 4% during the year (2010 : 4.75%). : (2010 year the during outstanding 4% Intereston chargedat was loans D Harding A Stirling D Goldie The Directors had the following interest bearing loans outstanding to the Group in relation to the TTG VES at 31 March 2011: 2011: March 31 at TTGVES the to relation in Group outstanding the loans bearinginterest following the to Directors Thehad Director The remaining percentage of allocated shares in the TTG VES pool is held by other senior management of the Group. Based onBased Group. the management senior of other by held is pool TTGVES the in percentageallocated shares of remaining The financial the statements, to dilutive the five note disclosed the of in as effect and year, the pricefor share average weighted the million). 28 : (2010 million 22 was 2011 March 31 at pool VES the in shares of numberpotential D Harding A Stirling D Goldie Director The Directors had the following percentage share in the TTG VES pool at 31 March 2011: March 31 at pool TTGVES the in percentagefollowing share the Directors Thehad a. demergerenhancementfinancial value the introducedthe to two statements, to were schemes five prior note in out set As to Enhancement Scheme(‘CPW Value Group TTGVES’). (‘TTGTalkTalk CarphoneVES’) Warehouse the and Details of Directors’ interests in options to buy shares in the Company are as follows: as Company are the in shares buy optionsto Directors’ interestsDetails in of 1) Directors’ interestin shares and dates of service contracts* 36
Directors’ remuneration report continued
2) CPW legacy schemes a. Share gift The Directors had the following interest bearing loans outstanding to the Group in relation to the settlement of the tax liability arising as a result of a share gift given in December 2008 by CPW:
2011 2010 Director £000 £000 A Stirling 144 144 D Goldie 144 144 288 288 b. CSOP At 31 March 2010 Exercise or date of Granted Exercised during Lapsed At 31 March price per Exercisable Expiry Director appointment during the year the year during the year 2011 share £ from date Total for A Stirling 106,668 – – – 106,668 0.52 06/06/2006 06/06/2013
R Taylor 200,000 – (200,000)(1) – – 0.87 19/05/2002 19/05/2010 200,000 – (200,000)(1) – – 1.16 19/05/2002 19/05/2010 240,000 – (240,000)(2) – – 0.73 21/05/2004 21/05/2011 444,444 – – – 444,444 0.52 06/06/2006 06/06/2013 250,000 – – – 250,000 0.48 11/06/2005 11/06/2012 Total for R Taylor 1,334,444 – (640,000) – 694,444
(1) The market price at date of exercise was 127p (2) The market price at date of exercise was 137p
The market price per share was 134p as at 31 March 2011 (2010 : 127p), and the range during the year was 170p to 107p.
TalkTalk Telecom Group PLC | Annual Report 2011 Overview Performance review Governance Financial statements Other information
(2) (2) (2) (2) (2) (2) (1) (1) 37 date Expiry 28/07/2014 28/07/2014 04/12/2016 04/12/2016 28/07/2015 04/12/2016 04/12/2016 04/12/2016 04/12/2016 11/06/2012 28/07/2014 28/07/2015 Annual Report2011
| from Exercisable 11/06/2005 04/06/2011 04/06/2011 04/06/2011 28/07/2007 28/07/2007 28/07/2008 28/07/2008 28/07/2008 04/06/2010 04/06/2010 04/06/2010
– – – – – – – – – – – – share £ Exercise price per TalkTalk Telecom Group PLC PLC Group Telecom TalkTalk
– – – – – – 2011 52,734 52,734 At March 31 213,856 105,468 675,000 675,000 200,000 200,000 1,563,856
– – – – – – Lapsed (291,176) (379,136) (379,136) during the year (145,588) (145,588) (758,272) (965,075) (482,537) (482,538)
– – – – – – – – – – – – – – – the year Exercised during
– – – – – – – – – – – – – – – Granted during the year
or date of 52,734 52,734 appointment 379,136 379,136 213,856 145,588 145,588 958,272 482,537 675,000 675,000 482,538 396,644 200,000 2,528,931 At March 31 2010 Performance shares For awards made in December 2006 the performance conditions set out in previous CPW annual reports were not satisfied and the shares lapsed in June 2010. Director A Stirling Details of Executive Directors’ conditional right to receive nil priced options in the Company are shown in the following table: following the shownin ExecutiveCompanyDetails are of the pricedin options Directors’ nil conditional receive to right c. Total forTotal A Stirling Total forTotal D Goldie D Goldie (2) Total forTotal R Taylor For(1) awards made in July 2004 the performance conditions set out in previous CPW annual reports have been satisfied. R Taylor 38
Directors’ remuneration report continued
Directors’ interests in shares and dates of service contracts
Ordinary shares of 0.1p
Director 31 March 2011 31 March 2010 Date of contract C Dunstone 295,209,396 296,144,535 20 January 2010 D Harding – – 20 January 2010 A Stirling 536,687 536,687 20 January 2010 D Goldie 945,460 945,460 20 January 2010 R Taylor 1,083,698 978,678 20 January 2010 J Gildersleeve 246,000 246,000 20 January 2010 J Allwood – – 20 January 2010 B Hoberman – – 20 January 2010 I West 164,323 – 8 February 2011
Performance graph The graph below shows the Group’s performance compared to the TSR performance of the FTSE 250 from the date of the Group’s listing, 29 March 2010. The FTSE 250 was selected as it is a broad market index of which the Group is a member.
Performance
£m 150
100
50 31/03/2011 26/03/2010
TalkTalk Telecom Group PLC
FTSE 250
This report was approved by the Board on 18 May 2011.
TalkTalk Telecom Group PLC | Annual Report 2011 Overview Performance review Governance Financial statements Other information
39
5.54% 4.95% 4.98% 3.98% share capital 12.82% Percentage of Annual Report2011
|
shares Number of 45,331,791 50,596,100 45,592,488 36,398,095 117,160,528
TalkTalk Telecom Group PLC PLC Group Telecom TalkTalk
2006.
So far as the Director is aware, there is no relevant audit audit relevant no is there aware, is Director the as far So and unaware; are auditor company’s the which of information The Director has taken all the steps that he/she ought to have taken as a Director in order to make himself/herself aware of any relevant audit information and to establish that the company’s auditor are aware of the information.
London W11 4AR LondonW11 Morris Tim CompanySecretary 2011 May 18 Going concern facilities and projections financial current of basis the On has Group the that satisfied are Directors the foreseeable available, the for operation in continue to resources adequate to continue statements financial the consequently and future the in discussed as basis, concern going the on prepared be 16. page on review Finance Directors’ indemnities liabilitydirector’sOther than indemnity other insurance no Directors. to provided been has Audit information approval of date the Directorat a is personswho the Eachof reportannual this confirms of that: • • in interpreted confirmationThis be should and given is Companies the of accordances418 provisions of with the Act Board the of order By PLC Group Telecom TalkTalk StreetEvesham 11 Significant shareholdings notified the been Company of had the 2011 May 18 At Company’s shares: the interestsin following Name David Peter John Ross Capital Research and Management Company FMR LLC FIL Limited Government of Singapore Investment Corporation Pte Ltd the detailedin Directorsare the interestsof total The 38. to Directors’ reportremuneration32 pages on
different from its book value at 31 March 2011. It is expected expected is It 2011. March 31 at value book its from different capital by covered losses.capital be any would that gains Movements in property,outMovements set in equipmentare and plant financial the of opinion statements. the to In 12 note in Group’s the of value market currentopen Directors the the materially not buildings is and land freehold interestsin year are provided in notes 21 and 22 in the financial statements. capital issuedshare the movements duringin the Detailsin financial the in 22 and 21 notes in provided are year Property, plant and equipment except as disclosed in the Directors’ remuneration report on on report remuneration Directors’ the in disclosed as except 38. to 32 pages Share capital donations and no political no donationseither year. donationsand in Contracts with controlling Shareholders Shareholders, controlling with contracts material no are There Donations charitable of £229,915) : (2010 £240,455 made Company The It is the Company’s policy to develop and maintain key maintainkey and Company’sdevelop policythe to is It businessobtainmutuallyrelationships withits suppliersto acceptedcreditpaymentaverageperiod taken Theterms. days). 25 : (2010 days 24 payableswas trade on support(includingprovided incomesupport insurance) employment. their secure try to to Supplier payment policy policy, applicationsemploymentpolicy,disabled persons are by for applicant the abilities of the considered, fullymind in bearing employeesbecomingdisabledconcerned. of event the In and followed process is employment thorough during a The Company has an equal opportunitiesequal an Company Thehas policy which samewith providedthe disabledpersonsthatare ensures opportunitiesemployment, for development,career training employees.other partwithAs all along thispromotion of and Employment of disabled people Other statutory information 40 Overview Performance review Governance Financial statements Other information 41 41 47 87 42 45 43 44 46 48 49 86 88 89
Notes to the company financial statements Company balance sheet of movement Company reconciliation funds in Shareholders’ Consolidated cash flow statement Notes to the consolidated financial statements Independent Auditor’s report to the Directors PLC Group Telecom of TalkTalk Consolidated statement of comprehensive income of comprehensive Consolidated statement equity Consolidated statement of changes in Consolidated balance sheet Independent auditor’s report to the members Independent auditor’s PLC Group Telecom of TalkTalk statement Consolidated income responsibilities Statement of Directors’ Financial statements Financial 42
Statement of Directors’ responsibilities
The Directors are responsible for preparing the annual report The Directors are responsible for the maintenance and and the financial statements in accordance with applicable law integrity of the corporate and financial information included and regulations. on the Company’s website. Legislation in the United Kingdom governing the preparation and dissemination of financial Company law requires the Directors to prepare financial statements may differ from legislation in other jurisdictions. statements for each financial year. Under that law the Directors are required to prepare the Group financial statements in Responsibility statement accordance with International Financial Reporting Standards We confirm that to the best of our knowledge: (IFRSs) as adopted by the European Union and Article 4 of the IAS Regulation and have elected to prepare the Parent • the financial statements, prepared in accordance with the Company financial statements in accordance with United Kingdom relevant financial reporting framework, give a true and fair Generally Accepted Accounting Practice (United Kingdom view of the assets, liabilities, financial position and profit Accounting Standards and applicable law). Under company or loss of the Company and the undertakings included law the Directors must not approve the accounts unless they in the consolidation taken as a whole; and are satisfied that they give a true and fair view of the state • the management report, which is incorporated into the of affairs of the Company and of the profit or loss of the Directors’ Report, includes a fair review of the development Company for that period. and performance of the business and the position of the In preparing the Parent Company financial statements, Company and the undertakings included in the consolidation the Directors are required to: taken as a whole, together with a description of the principal risks and uncertainties that they face. • select suitable accounting policies and then apply them consistently; By order of the Board • make judgments and accounting estimates that are reasonable and prudent; • state whether applicable UK Accounting Standards have been followed, subject to any material departures disclosed and explained in the financial statements; and D Harding A Stirling Chief Executive Officer Chief Financial Officer • prepare the financial statements on the going concern 18 May 2011 18 May 2011 basis unless it is inappropriate to presume that the company will continue in business. In preparing the Group financial statements, International Accounting Standard 1 requires that Directors: • properly select and apply accounting policies; • present information, including accounting policies, in a manner that provides relevant, reliable, comparable and understandable information; • provide additional disclosures when compliance with the specific requirements in IFRSs are insufficient to enable users to understand the impact of particular transactions, other events and conditions on the entity’s financial position and financial performance; and • make an assessment of the Company’s ability to continue as a going concern. The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Company’s transactions and disclose with reasonable accuracy at any time the financial position of the Company and enable them to ensure that the financial statements comply with the Companies Act 2006. They are also responsible for safeguarding the assets of the Company and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities.
TalkTalk Telecom Group PLC | Annual Report 2011 Overview Performance review Governance Financial statements Other information 43
Annual Report2011
|
TalkTalk Telecom Group PLC PLC Group Telecom TalkTalk
are prepared is consistent is Group with prepared the are
RemunerationReport described is asthat
statements.
been audited.been
the financial year for which the Group financial Group the which for financial year the
statements, in relation to going concern; the part of the Corporate Governance Statement relating to the Company’sand compliancereview; withour the nine provisionsfor of specified Code Combined 2008 June the certain elements of the report to Shareholders by the Board on Directors’ remuneration. certain disclosures of Directors’ remunerationspecified by law are not made; or we explanations and information the all received not have we require for our audit. the Directors’ statement, contained within the financial
• • Other matter Companyfinancialreported the have separatelyon We period the for PLC Group Telecom statementsTalkTalk of the information in the on and 2011 March 31 ended Directors’ having John Murphy (Senior Statutory Auditor) Deloittebehalf of on LLPand for CharteredAccountants Statutory and Auditor London,KingdomUnited 2011 May 18 Opinion on other matter prescribed by the Companies Act 2006 Act Companies the by prescribed matter other on Report Opinion Directors’ the in given information the opinion our In for statements financial Matters on which we are required to report by exception following: report the respect of to in nothing have We report Companiesto Actthe 2006 required Under are we opinion: our in if, you to • • review: to required Listingare we the UnderRules •
31 March 2011 and of its profit for the year then ended; then year the itsfor profit of and 2011 March 31
Auditors.
of the Companies Act 2006 and Article 4 of the IAS Regulation. IAS the of 4 Article and 2006 Act Companies the of have been properly prepared in accordance with IFRSs as adopted by the European Union; and have been prepared in accordance with the requirements give a true and fair view of the state of the Group’s affairs as as affairs Group’s the of state the of view fair and true a give at
• • In our opinion the Group financial Group statements:the opinion our In • become aware of any apparent material misstatementsmaterial apparent any orof becomeaware inconsistenciesreport. implicationsconsiderour the we for Opinion on financial statements the Directors; and the overall presentation of the financial the presentationoverall of the and Directors; the non-financial and the statements. all addition,read In we report identify annual to financial the information in material inconsistenciesfinancialaudited with the statements. we If This includes an assessment of: whether the accountingassessment includeswhether Thisthe an of: circumstances Group’s and the to appropriate policiesare the disclosed; adequately and applied consistently been have by made estimates accounting significant of reasonableness and disclosures in the financial the disclosures statements in sufficientand to give financial assurance free reasonablethe that statementserror. are or fraud by caused whether misstatement, material from for Scope of the audit of the financial statements auditinvolvesobtainingAn evidence amounts aboutthe and express an opinion on the Group financial Group statementsthe on opinion an express and Standards International and law applicable with accordance in to us standardsThose require Ireland). Auditing and (UKon Standards Ethical Board’s Practices Auditing the with comply As explained more fully in the Directors’ Responsibilitiesthe in fully explainedmore As preparation the Statement,responsiblefor Directorsare the that satisfied being for and statements financial Group the of responsibilityOur audit view. to fair is and true a give they the company and the Company’s members as a body, for our for body, Company’sa membersthe as company and the formed. have we opinions report, the auditthis work, for for or Respective responsibilities of Directors and auditor that we might state to the Company’smatters members the those stateto might we that reportauditor’s for an and in them stateto to required are we fullest extentthe permittedwe law, by purpose.To other no acceptassumeresponsibility thannot or other anyonedo to This report is made solely to the Company’s members,the reportsolelyto This made is the of Partaccordance of in 16 with3 body, Chapter a as so undertaken been has work audit 2006.Our Act Companies Consolidated cash flow statement and the related notes 1 to 29. 29. to 1 notes related the and statement flow cash Consolidated Reporting their in applied been has Financial that framework reporting financial The International and law applicable is preparation Union. European the by Standards adopted (IFRSs) as Telecom Group PLC for the year ended 31 March 2011 which 2011 March 31 ended year the for PLC Group Telecom Consolidated the statement, income statement Consolidated the Consolidated comprise the income, comprehensive of statement Consolidatedequity, changesthe in balance sheet, of the We have audited the Group financial statements of TalkTalk TalkTalk financial Group statementsthe auditedof have We of TalkTalk Telecom Group PLC Group Telecom TalkTalk of Independent auditor’s report the members to auditor’s Independent 44
Consolidated income statement
For the year ended 31 March 2011
Before After Before After amortisation of Amortisation of amortisation of amortisation of Amortisation of amortisation acquisition acquisition acquisition acquisition acquisition of acquisition intangibles and intangibles and intangibles and intangibles and intangibles and intangibles and exceptional exceptional exceptional exceptional exceptional exceptional items items* items items items* items 2011 2011 2011 2010 2010 2010 Notes £m £m £m £m £m £m Revenue 2 1,765 – 1,765 1,686 – 1,686 Cost of sales (877) – (877) (838) – (838) Gross profit 888 – 888 848 – 848 Operating expenses excluding amortisation and depreciation 3 (612) (48) (660) (627) (47) (674) EBITDA 276 (48) 228 221 (47) 174 Depreciation 3, 12 (57) (3) (60) (46) (1) (47) Amortisation 3, 11 (26) (66) (92) (24) (87) (111) Share of results of joint venture 14 (1) – (1) – – – Operating profit 192 (117) 75 151 (135) 16 Finance costs 6 (18) – (18) (10) (1) (11) Investment revenue 6 – – – 6 – 6 Profit before taxation 174 (117) 57 147 (136) 11 Taxation 7 (52) 30 (22) (41) 27 (14) Profit (loss) for the year 122 (87) 35 106 (109) (3)
Attributable to the equity holders of the Parent Company 122 (87) 35 106 (109) (3)
Earnings per share Basic (pence) 10 13.5 3.9 11.8 (0.3) Diluted (pence) 10 12.8 3.7 11.2 (0.3)
* A reconciliation of Headline information to Statutory information is provided in note 9 to the financial statements.
The accompanying notes are an integral part of this Consolidated income statement. All amounts relate to continuing operations.
TalkTalk Telecom Group PLC | Annual Report 2011 Overview Performance review Governance Financial statements Other information – 45 (1) (1) (3) (5) (5) £m 2010 1 2 (1) (1) 37 37 35 £m Annual Report2011 2011
| 7 Notes TalkTalk Telecom Group PLC PLC Group Telecom TalkTalk (1)
(1) (2) (1) recognised within retained earnings and other reserves recognised within the Translation reserve The accompanying notes are an integral partConsolidated integral this statement comprehensiveof an of accompanyingincome. The are notes Attributable to the equity holders of the Parent Company Parent the of holders equity the to Attributable (1) (2) Taxation of items relating to components of other comprehensive income comprehensiveTotal income (expense) for the year Profit (loss) for the year Exchange differences on translation of foreign operations Cash flow hedges and currency translation 2011 March 31 ended year the For Consolidated statement of comprehensive income comprehensive of statement Consolidated 46
Consolidated statement of changes in equity
For the year ended 31 March 2011
Retained Share Share Translation Demerger earnings and capital premium reserve reserve other reserves Total
Notes £m £m £m £m £m £m At 1 April 2010 1 586 (60) (513) 378 392 Total comprehensive income for the year – – (1) – 38 37 Recycling of translation reserve – – (4) – – (4) Settlement of Group ESOT shares – – – – 1 1 Net cost of share-based payments 5 – – – – 4 4 Equity dividends 8 – – – – (15) (15) At 31 March 2011 1 586 (65) (513) 406 415
Retained Share Share Translation Demerger earnings and capital premium reserve reserve other reserves Total
Notes £m £m £m £m £m £m At 1 April 2009 – – (59) 529 232 702 Total comprehensive income for the year – – (1) – (4) (5) Issue of share capital 21, 22 1 986 – (987) – – Capital reduction 22 – (400) – – 400 – Net cost of share-based payments 5 – – – – 4 4 Share-based payments reserve debit 5 – – – – (3) (3) Equity dividends 8 – – – – (251) (251) Movements in demerger reserve 22 – – – (55) – (55) At 31 March 2010 1 586 (60) (513) 378 392
The accompanying notes are an integral part of this Consolidated statement of changes in equity. In March 2010 the share premium relating to the ordinary shares was reduced by £400m by way of a court-approved capital reduction (note 22). This had the effect of creating distributable reserves which may be released at the discretion (and upon the resolution) of the Board. During the year ended 31 March 2010 equity dividends of £251m were paid by TalkTalk Telecom Holdings Limited, including £69m of dividends paid to its Shareholders and an intercompany dividend of £182m paid as part of the demerger (note 8).
TalkTalk Telecom Group PLC | Annual Report 2011 Overview Performance review Governance Financial statements Other information
1 1 – 1 2 3 47 £m (19) (18) (42) (29) (60) 316 470 155 378 186 180 262 392 392 586 2010 (513) (490) (490) (400) (508) (998) 1,204 1,390 *As restated *As 1 1 4 1 3 2 £m (14) (44) (32) (22) Annual Report2011 (65) 116 415 415 161 471 155 255 2011
290 586 406 | (474) (513) (376) (395) (409) (883) 1,137 1,298 7 22 22 22 22 11 11 17 14 15 12 16 16 18 18 18 13 20 20 21, 2221, Notes TalkTalk Telecom Group PLC PLC Group Telecom TalkTalk
A Stirling A FinancialChief Officer 18 May 2011 May 18
D Harding D ExecutiveChief Officer 2011 May 18 The accompanying notes are an integral part of this Consolidatedpart integral this balance sheet. of an accompanyingThe are notes behalf by: its on signed were They 2011. May 18 on Board the financial Theseby approved statements were Retained earnings and other reserves Funds attributable to equity shareholders * The prior year balance sheet has been restated to reflect the finalisation of the Tiscali UK andTelco UK acquisition purchase prices (note 29). Share capital Share premium Translation reserve Demerger reserve Net assets Equity Provisions liabilitiesTotal Non-current liabilities Loans and other borrowings Trade andTrade other payables Corporation tax liabilities Loans and other borrowings Provisions Total assetsTotal Current liabilities Cash and cash equivalents Inventories andTrade other receivables Loans to related parties Deferred tax asset Current assets Other intangible assets Property,plant and equipment Non-current asset investments Investment in joint venture Non-current assets Goodwill For the year ended 31 March 2011 March 31 ended year the For Consolidated balance sheet balance Consolidated 48
Consolidated cash flow statement
For the year ended 31 March 2011
2011 2010 Notes £m £m Operating activities Operating profit 75 16 Adjustments for non-cash items: Share-based payments 5 4 4 Depreciation 3, 12 60 47 Amortisation 3, 11 92 111 Share of losses of joint venture 14 1 – Recycling of translation reserve 9 (4) – Fair value gain on step acquisition 13 (1) – Operating cash flows before movements in working capital 227 178 Decrease in trade and other receivables 11 35 Increase in inventory (1) (1) (Decrease) increase in trade and other payables (28) 2 Decrease in provisions (4) (13) Cash generated by operations 205 201 Income taxes paid (2) (2) Net cash flows generated from operating activities 203 199
Investing activities Interest received 6 – 6 Acquisition of subsidiaries and joint venture, net of cash acquired 13, 14 5 (240) Disposal of subsidiaries, net of cash disposed 13 4 – Acquisition of intangible assets (27) (35) Acquisition of property, plant and equipment (83) (67) Disposal of property, plant and equipment – 1 Cash flows used in investing activities (101) (335)
Financing activities Settlement of Group ESOT shares 22 1 – Repayment of borrowings 23 (72) (425) Drawdown of borrowings 23 – 500 Interest paid (17) (9) Cash flows relating to movements in demerger reserves – (54) Net decrease in loans to related parties 23 1 394 Dividends paid 8 (15) (251) Cash flows (used) from financing activities (102) 155
Net increase in cash and cash equivalents – 19 Cash and cash equivalents at the start of the year (8) (27) Cash and cash equivalents at the end of the year (8) (8)
Cash and cash equivalents for the purpose of this statement comprise: Cash and cash equivalents 18 1 1 Bank overdrafts* 18 (9) (9) (8) (8)
* Bank overdrafts are disclosed within Loans and other borrowings less than one year.
The accompanying notes are an integral part of this Consolidated cash flow statement.
TalkTalk Telecom Group PLC | Annual Report 2011 Overview Performance review Governance Financial statements Other information 49
Annual Report2011
| shareholding of the Group the of shareholding
number of the Group’s shares Group’s the of number
TalkTalk Telecom Group PLC PLC Group Telecom TalkTalk in issue during this year do not provide provide not do year this during issue in
on the number of CPW shares in issue CPWin of numbershares the on
this financial year. this
2010 in the form that arose on Demerger, the Demerger, on arose that form the in 2010
employees of its subsidiaries and of Best Buy Europe. Europe. Buy Best of and subsidiaries its of employees
flows relating to movements in demerger reserve. demerger movements in to relating flows the demerger date, the date, demerger the
capitalcontribution CPW. from benefited from the incentives. the benefited from assets to be combined. be assets to
been allocated to the Group based on the businesses the on based Group the allocatedbeen to profits or losses arising on the transfers are reflected transfers are the profitslosses arising on or
March a
issue after that date, and the afterissue and date, that the demerger reserve as these are effectively are reservethese demerger as the treated charged,ifbeen havingeven as treated CPWtherefore is
meaningful basis for calculating meaningfulfor was,basis therefore, EPS.EPS
As the Company did not exist during the year ended year existthe during not Company did the As 31 shares actual average a calculatedbased until in during ESOT of the Group. Such transfers were made at market value market at made transfersSuchwere Group. the of cash considerationmanagement for by determined as which at value full the 2010, March 31 At 2010. March during and sheet balance the in reflected are made were transfers any in as reserve,Adjustments demerger the reflectedwhich in implicationscashcash equivalents, and have for have cash flow the disclosed statement as cash been in reserve. demerger movements in to relating flows CPWentitiesbeenother in have from or Dividends to equity. in recorded entry corresponding the with eliminated applicablethe been had have dividends Such not would currentoperationsindependentand been the during future the representative not of are and precedingyear in recorded paymentsSuch are Group. positionthe of cash CPWissuedequity settled share-based payments to certain employees these to relation arisingin expense related The has that incomestatementthe the of allocated in been has Taxation underlying possible position the as tax far reflect as to Group companies between provided relief Group Any business. the of in made. not suchchargeswere The prior year consolidated financial statements of the Group Group the of statements financial consolidated year prior The objectivethewith presenting the of prepared been have form the in Group the cashresults,assets flows and of net been had itif as demerger, completionthe on of arose that 2010. March 31 endedstandalone year a businessthe during aggregating by financialThe prepared been statements have Statutory the assetscompaniesthat accounts and the of assetsAny demerger. on Group the transferredto been have related that CPW of consolidation the within held liabilities and consolidated the financialreflected in also were Group the to The Group. part formed statements,the they of though as financial‘Consolidated Separate and principlesIAS27 of ‘Consolidation SpecialPurpose – statements’12 SIC and companies the determining in applied been Entities’ have and certain assetscompaniesdemerger, part and the a As of companiesThese and Group. the of transferredout were part never were they though as treated been assets have
within the Financewithin the review.
19
Kingdom.
InternationalAccounting Standardregulation.
reduction in Shareholders’funds.reduction Otherin assets and liabilities of the Group. liabilitiesthe of
page pages 86 to 93. 86to pages a itsindividual financial statements, contained are which
which the Group operates. Group whichthe
Group plc and the Group. The Company and the Carphone the Company Theand Group. the and plc Group London the separatelyon listed were plc Group Warehouse StockExchange. Comparative information – presentation of the Group’s Results for the yearWarehouse ended March 31 2010 Carphone into demerged CPW 2010 March 26 On as assets the with consolidated are trust the by held liabilities and Where necessary, adjustments are made to the financial the necessary, Where to adjustmentsmade are accountingbring statements subsidiariespolicies to of Group. the by used with those line into used shown are ESOT Group the by held Company the in Shares included from or to the date on which control passed to or was was or to passed control which on date the to or from included Intercompanytransactions Group. the and relinquishedby consolidation. on eliminated are subsidiaries between balances year. Control is achieved where the Company has the power the Company has the achievedwhere Control is year. investee an operatingfinancial policies and of the govern to obtainbenefits activities. entityits to from as so are year the during sold or acquired subsidiaries of results The financial statements of the Company, entitiesfinancial Company, the controlled by statements of Company(its entitiesthe and subsidiaries)jointly-controlled each March 31 to up made ventures) joint (its Company the by The Group’s principalbelow. out accounting set policiesare Group’s The Basis of consolidation consolidatedThe financial statements incorporate the presented in Sterling, rounded to the nearest million, because because instrumentsinvestments. and financialThe statements are million, nearest the to rounded Sterling, in presented principal economiccurrencythe environment the of is that in by the Directors in reaching this conclusion are set outconclusion set this reaching are Directors in the by on historical the on prepared been have statements financial The certain revaluationof the cost basis,financialfor except on going the on prepared been have statements financial The concernconsiderations the basis.Details of undertaken Union KingdomUnitedapplied Generally Company Thehas AcceptedAccounting Practice (‘GAAP’) preparation the in of ReportingStandards the (‘IFRS’) in use for adopted as accordance in applied with as the and Union European Companies Act the 2006. provisions of financialThese European the of 4 Article with comply therefore statements United have Company the of statements financial Consolidated The accordance in withInternational prepared been Financial Basis of preparation incorporatedthe is in PLC Group Telecom TalkTalk 1. Accounting1. policies and basis of preparation Notes to the consolidated financial statements financial the consolidated to Notes 50
Notes to the consolidated financial statements continued
1. Accounting policies and basis of preparation (continued) The adoption of IFRS 1, IFRS 2, IAS 28, IFRIC 17 and Improvement to IFRS (April 2009) have had no material impact on the Group. Diluted EPS has been calculated based on options held over CPW shares during the year ended 31 March 2010 and the IFRS 3 (2008) ‘Business Combinations’, IAS 27 (2008) Group’s proportion of the CPW share price. ‘Consolidated and Separate financial statements’ and IAS 28 (2008) ‘Investments in Associates’ Changes in accounting policy The most significant changes to the Group’s previous accounting In the current year, the following new and revised Standards policies relate to business combinations. These are: acquisition and Interpretations have been adopted. Unless otherwise related costs are included in operating expenses as they are stated, the adoption of these standards and interpretations incurred rather than capitalised; any changes to the cost of an has had no significant impact on these financial statements: acquisition, including contingent consideration, resulting from • IFRS 1 (Revised) ‘First-time Adoption of International an event after the date of acquisition are recognised in profit or Financial Reporting Standards’; loss rather than as an adjustment to goodwill; and where a step acquisition occurs the Group will remeasure its previously held • IFRS 2 (amended) ‘Group Cash-settled Share-based equity interest at acquisition date fair value and recognise the Payment Transactions’: the amendment clarifies the resulting gain or loss, if any, in the income statement or other accounting for share-based payment transactions comprehensive income. between Group entities; The adoption of IFRS 3 (2008) and the subsequent changes to • IFRS 3 (2008) ‘Business Combinations’; the impact the accounting policies have resulted in the Group recognising of the changes are set out below; a gain of £1m within its income statement in respect of the fair • IAS 24 (2009) ‘Related party disclosures’: the impact value of the equity interest previously held for the year ended of the changes are set out below; 31 March 2011. • IAS 27 (2008) ‘Consolidated and Separate financial Any adjustments to contingent consideration of acquisitions statements’: the impact of the changes are set out below; made prior to 1 April 2010 which result in an adjustment to goodwill continue to be accounted for under IFRS 3 (2004) • IAS 28 (Revised) ‘Investments in Associates’: the impact and IAS 27 (2005). of the changes are set out below; • IFRIC 17 ‘Distribution of Non-cash Assets to Owners’: the IAS 24 (2009) ‘Related party disclosures’ Interpretation provides guidance on when an entity should The Group has early adopted IAS 24 (2009) ‘Related party recognise a non-cash dividend payable, how to measure disclosures’, which was endorsed by the EU in July 2010 and, the dividend payable and how to account for any difference as such, can be adopted for the year ended 31 March 2011. between the carrying amount of the assets distributed and The impact of the standard is that it simplifies the definition the carrying amount of the dividend payable when the of a related party, with shared person or entity (director, payable is settled; and shareholder or otherwise) no longer automatically implying the existence of a related party relationship. Under the • Improvements to IFRS (April 2009): the impact of the revised standard this only occurs where the person or entity changes are set out below. can exert significant influence over both entities. The impact The following amendments were made as part of is that following the demerger of the Group and the adoption Improvements to IFRS (2009): of IAS 24 (2009), Best Buy Europe and Carphone Warehouse Group plc are no longer considered related parties of the Group. • Amendment to IFRS 2 ‘Share-based Payment’: IFRS 2 has been amended, following the issue of IFRS 3 (2008), to Foreign currency translation and transactions confirm that the contribution of a business on formation Material transactions in foreign currencies are hedged using of a joint venture and common control transactions are forward purchases or sales of the relevant currencies and not within the scope of IFRS 2. are recognised in the financial statements at the exchange • Amendment to IAS 17 ‘Leases’: IAS 17 has been amended rates thus obtained. Unhedged transactions are recorded such that it may be possible to classify a lease of land as at the exchange rate on the date of the transaction. Hedge a finance lease if it meets the criteria for that classification accounting as defined by IAS 39 ‘Financial Instruments: under IAS 17. Recognition and Measurement’ has been applied in the current and preceding financial year by marking to market • Amendment to IAS 39 ‘Financial Instruments Recognition the relevant financial instruments at the balance sheet date and Measurement’: IAS 39 has been amended to state and recognising the gain or loss in equity in respect of cash that options contracts between an acquirer and a selling flow hedges, and through the income statement in respect shareholder to buy or sell an acquiree that will result in a of fair value hedges. business combination at a future acquisition date are not excluded from the scope of the standard.
TalkTalk Telecom Group PLC | Annual Report 2011 Overview Performance review Governance Financial statements Other information 51
Annual Report2011
| TalkTalk Telecom Group PLC PLC Group Telecom TalkTalk of the lease. the of
options expected to vest is adjusted only for expectations of of expectations for only adjusted is vest to expected options
Leases chargedto Rentalpaymentsoperatingare underleases the straight-lineover basis income statement a the on periods rent-free and incentives Lease lease. the of period amortised incomestatement the are the over through period Charges also arise on loans that are provided to employees to employeesto to provided are that loans on arise also Charges part long-termas of Group the in shares of purchase the fund not, are loans whichthe extent to the to incentives(LTIP), plans certain in circumstances, is cost suchloans of the repayable; incentiverelevant plans.the courseof the expensedover under shares of purchase the for granted are loans Where loans. these chargedon is interest LTIP, a accordance In with‘Share-basedIFRS 2 payment’ cost no grantedoptions the respect of recognisedin been has November2002. 7 before Subscriberrecruiting acquisition of costs costs party third being costs, acquisition Subscriber incurred. as expensed are customers, new retaining and Pensions Contributionsdefined contributionto to charged schemes are accordance becomein payableincome statement they the as schemes. the of rules with the Dividends Dividendbeenpaymentrecognised when has income is received.Finaldividend distributionsa recognisedas are they which in liabilityfinancial year the the statements in in dividends Interim Shareholders. relevant the by approved are paid. are which they in year the recognisedin are transactiondemerger the have Specialdividends to relating liabilityfinancial a the the recognisedstatementsas in in been Shareholders. relevant the by approved were they which in year The movement in cumulative expense since the previous sincethe expense cumulative in movement The incomestatement, the recognisedin is balance date sheet corresponding witha entry reserves. in schemesperformancewithFor market criteria, number the of cumulativevesting. movementin Theexpense to prior leavers the recognisedin is balancedate sheetprevious sincethe incomestatement, corresponding witha entry reserves. in share-based cancelled,paymenta If schemeis remaining any the expensedthrough scheme is the of value fair part the of forfeited, is scheme payment share-based a If statement. income chargespreviouslyfurther any no recognisedand is expense reversed.incomestatement the are recognisedthrough loans recognisedon also Share-based payment are charges settle liabilities,employeesto personal tax to provided circumstances, are that certain in not, are loans the which to extent the to grant. expensedon is cost suchloans of the repayable; 2010 1.12 1.52
whichit
Closing 2011 1.13 1.13 1.60 1.60 2010 1.13 1.59
Average 2011 1.17 1.56 shares that will eventuallywill thatvest. shares leavers prior to vesting. to prior leavers Data service solutions and other service contracts are obligations. performance its fulfils Group the as recognised basis over the minimum contract period subject to an adjustment for in contract churn; which periodin the Connection recognisedin chargesare the connection is made; and Voice usage is recognised in the period in which the customer takes the service; Promotional discounts are amortised on a straight-line Line rental is recognised in the period to which it relates; the subscriptionsrecognisedin broadband and are Voice period to which they relate;
For schemes with non-market performance criteria, the number number the criteria, performance non-market with sheet schemes For balance each at recalculated is vest to expected options of and target against performance of expectations on based date, of (for example, EPS targets) and a BlackMonte Scholes or a and targets) example,EPS (for withexternal those performanceCarlo for model criteria targets). example, TSR (for of for Binomialmodel a of use by measured is value Fair share-basedpayments withperformanceinternal criteria The Group issuesequity Group The settled share-based payments to certainemployees. Equity settled share-based payments expensed and grant, of date the at value fair at measured are number the of estimate an on based period, vesting the over • Share-based payments • • • • • comprises revenue generated from the provision of fixed line fixed provisionof the from comprisesgenerated revenue telecommunicationsservices. recognised is suchrevenue All services the provided: as are that are attributable operation.are that the to Revenue and taxes, related sales other and VAT of net stated is Revenue Where a foreign operation is sold, the gain or loss on disposal on loss or gain sold,the operation is foreign a Where incomestatementafterdetermined the is takingrecognised in accountcumulative into the currency translation differences Euro United States Dollar The principal exchange rates against UK Sterling used in these in usedagainstSterling principal UK Therates exchange follows: financial as statements are recognised in equity. All other exchange differences are included included assets,operations overseasnet are goodwillresultsof and are differences exchange other All equity. in recognised incomestatement. the in foreign exchange rates for the year, and their balancesheets their and year, the for rates exchange foreign date. balancesheet the at prevailing rates the translatedat are opening of translation the operations to currencythe the of in Goodwill held is on arising differences Exchange relates. The results of overseas operations are translated at the average average the at translated are operations overseas of results The 52
Notes to the consolidated financial statements continued
1. Accounting policies and basis of preparation (continued) Acquisition intangibles Acquired intangible assets such as customer bases, customer revenue share agreements, brands and other intangible assets Gains or losses from sale and leaseback transactions are acquired through a business combination are capitalised deferred over the life of the new lease to the extent that the separately from goodwill and amortised over their expected rentals are considered to be above or below market rentals. useful lives of up to six years on a straight-line basis. The value The remaining gain or loss is recognised within operating attributed to such assets is based on the future economic expenses in the year in which the sale is completed. benefit that is expected to be derived from them, calculated as the present value of future cash flows after a deduction Taxation for contributory assets. Current tax, including UK corporation tax and overseas tax, is provided at amounts expected to be paid or recovered using At the acquisition date, acquisition intangibles are allocated the tax rates and laws that have been enacted or substantively to each of the CGU expected to benefit from the synergies of enacted at the balance sheet date. the combination. Details of impairment testing are provided within the Impairment of assets section below. Deferred tax is provided on temporary differences between the carrying amount of an asset or liability in the balance Property, plant and equipment sheet and its tax base. Property, plant and equipment are stated at cost, net of Deferred tax liabilities represent tax payable in future periods depreciation and any provision for impairment. Depreciation in respect of taxable temporary differences. Deferred tax is provided on all property, plant and equipment at rates assets represent tax recoverable in future periods in respect calculated to write off the cost, less estimated residual value, of deductible temporary differences, and the carry-forward of each asset on a straight-line basis over its expected useful of unused tax losses and credits. Deferred tax is determined life from the date it is brought into use, as follows: using the tax rates that have been enacted or substantively Short leasehold costs enacted at the balance sheet date and are expected to apply 10% or the lease term if less than ten years when the deferred tax asset is realised or the deferred tax liability is settled. Network equipment and computer hardware 12.5 – 50% per annum A deferred tax asset is recognised only to the extent that it is probable that future taxable profits will be available against Fixtures and fittings which the asset can be utilised. Current and deferred tax is 20 – 25% per annum recognised in the income statement except where it relates to an item recognised directly in reserves, in which case it Impairment of assets is recognised directly in reserves. Goodwill Deferred tax assets and liabilities are offset where there is Goodwill is not subject to amortisation but is tested for impairment a legal right to do so in the relevant jurisdictions. annually or whenever there is an indication that the asset may be impaired. Intangible assets For the purpose of impairment testing, at the acquisition date, Goodwill goodwill is allocated to each of the CGUs expected to benefit Goodwill arising on the acquisition of subsidiary undertakings from the synergies of the combination. The Group tests goodwill and businesses, representing the excess of the fair value of annually for impairment or more frequently if there are indications the consideration given over the fair value of the identifiable that goodwill might be impaired, this review is performed at a assets and liabilities acquired, is recognised initially as an CGU level. asset at cost and is subsequently measured at cost less The Group has two CGUs – Residential and Corporate. any accumulated impairment losses. The Group’s shared costs and assets relating mainly to On disposal of a subsidiary undertaking, the relevant goodwill infrastructure and central overheads are allocated across the is included in the calculation of the profit or loss on disposal. two CGUs based on the relative future cash flows. Impairment is determined by assessing the future cash flows of the CGU Operating intangibles to which the goodwill relates. The future cash flows of the Operating intangibles include internal infrastructure and design Group are taken from the Board or Management approved costs incurred in the development of software for internal use. three year plan and extrapolated out for the following 17 years Internally generated software is recognised as an intangible based on the UK’s long-term growth rate. This is discounted asset only if it can be separately identified, it is probable that by the CGU’s weighted average cost of capital to give the net the asset will generate future economic benefits, and the present value of that CGU. Where the net present value of development cost can be measured reliably. Where these future cash flows is less than the carrying value of the unit, conditions are not met, development expenditure is recognised the impairment loss is allocated first to reduce the carrying as an expense in the year in which it is incurred. Operating amount of any goodwill allocated to the CGU and then to the intangibles are amortised on a straight-line basis over their other assets of the segment pro-rata on the basis of the estimated useful economic lives of up to eight years. carrying amount of each asset in the unit. Any impairment
TalkTalk Telecom Group PLC | Annual Report 2011 Overview Performance review Governance Financial statements Other information 53
Annual Report2011
| TalkTalk Telecom Group PLC PLC Group Telecom TalkTalk of the obligation.discountedwhere the Provisions are of to 24 months. 24 to
provisions are typically provisionsutilisedare be expected to
12 conditions of the contractconditions conditionsthe market of the and at
been undertaken at the balance sheet date, and onerous onerous and date, sheet balance the at undertaken been obligation and a reliable estimate can be made of the of made estimate can be reliable a obligation and material. be considered to is money of value time
contractCompanyOne reorganisation.part the as of
One Company integration redundancyprincipally costs provisions Theseto relate and committed demonstrably are plans where recognised only are communicationaffectedappropriate those where and to has exit to contract made been decision costshas a where a These over Property Propertydilapidationspropertysimilar and to provisionsrelate costs,costs and associated property with onerous contracts. terms the to reference assessed by suchprovisions are All and Property balancedate. sheet expectedto provisionsare nextyears. utilisedthe nine over be Contract and other contracts onerous to Contract provisionsrelate other and contracts and the arisingon with unfavourable terms acquisitionbusinessesanticipated costsof and unresolved of reference assessed disputes. by legal suchprovisions are All balancedate.bestsheet available informationthe the at to utilised be expectedContract to provisionsare other and months. next the 24 over Provisions constructive or legal a recognisedwhen Provisionsare probable is it pasteventsand of result obligationa exists as settleto required outflow an be resources that will of the amount the categorisedfollows: Provisionsas are Operating efficiencies Operatingefficiencies principallyto relate provisions plans recognised where only redundancy costsare and demonstrably are committed appropriate where and communicationaffected those undertaken been has to typically provisionsTheseare balancedate. sheet the at followingmonths 12 utilisedthe over be expectedto reorganisation. announcementthe of
any
the Consolidated the
year. In year.
CGU is reduced to itsrecoverableamount. to reduced is CGU
value and principallyrouters.Net and and modemsvalue represents estimatedprice, sellingcostson less based is value realisable for made disposal.provisionis on incurredA be expectedto appropriate. where items obsolete as a receivable to the Group. the receivable to a as Inventories realisablecost net of and lower the statedat Inventoriesare When a joint venture has net liabilities,advanced net loans has any venture joint Whena equity accounted Group’s the included in are venture the to assets,loans net any has investmentventure it. Whena in balancesheet, the shownseparatelyin are it advanced to Group’s investment in the share capital of the joint ventures,asjoint capital the share of the in investment Group’s of share post-acquisition Group’s adjustedby the changesin impairment. any liabilitiesassets provisionfor or less net the share of the post-tax profits or losses of the joint ventures based based ventures joint the of losses or profits post-tax the of share financial the their for statementson shown are ventures joint in interest balancesheet,Group’s the the representing sheet, balance the non-current a assetin as Interests in joint ventures Group’s the includes equity the using accounted for are ventures joint Interestsin statement income Consolidated The method. recorded at fair value. Changes in fair value, together with value,together fair Changesvalue.in fair at recorded the to recycled and equity, to directly taken are taxation, to related determined or sold is investment the when statement income impaired. be at cost, being the fair value of the consideration the plusgivenof value cost, fair at the being transaction any costs associatedacquisition. with the then are Investments categorisedand available-for-sale as are or Investments Investments,subsidiaries,initially than recognisedother are to the asset for which the estimates of future cashfutureestimates flows have whichof the assetfor the to adjusted.been not less be estimated to assetis an of amountrecoverable the If carrying the than carryingamount, the asset the of amount the estimated cash flows are discounted to their present value present their to discountedestimated cashthe flows are reflects thatmarket current discountpre-tax the rate a using risksspecific the and money of value assessmentstime the of useful life is tested for impairment at least annually and whenever whenever and annually least at impairment for tested is life useful impaired. be assetindicationmay the an that is there valueasset’s fair an of higher the is recoverableamountThe use,assessing in In value use. in itsvalue and sell costs less to is any indication that those assets have sufferedindicationassets impairment have any those an that is extent the makes Group and the exists, impairment amount of indicator an Where loss. recoverable asset’s the of estimate formal a impairment loss.intangibleany indefinite An asset with of an Property, plant and equipment and other intangible assets amounts carrying the reviews Group the date, reporting each At there whether determine to assets intangible and tangible its of subsequentlyreversed. Sensitivityanalysisperformed is reasonablypossibleusing assumptions. key the changesin loss is recognised in the income statement and is notincome statement is the and recognised in is loss 54
Notes to the consolidated financial statements continued
1. Accounting policies and basis of preparation (continued) • Equity instruments Equity instruments issued by the Group are recorded at the Financial instruments proceeds received, net of direct issuance costs Financial assets and financial liabilities, in respect of financial Shares in the Company held by the Group ESOT are shown as instruments, are recognised in the Group’s balance sheet a reduction in Shareholders’ funds. Other assets and liabilities when the Group becomes a party to the contractual provisions held by the trust are consolidated with the assets of the Group. of the instrument. Derivative financial instruments and hedge accounting Trade and other receivables The Group’s activities expose it to the financial risks of Trade receivables, loans, and other receivables that have fixed changes in foreign exchange rates and interest rates. The use or determinable payments that are not quoted in an active of financial derivatives is governed by the framework approved market are classified as loans and receivables. Loans and by the Board, which provide written principles on the use of receivables are measured at amortised cost using the effective financial derivatives consistent with the Group’s risk management interest method, less any impairment. Interest income is strategy. Changes in values of all derivatives of a financing recognised by applying the effective interest rate, except nature are included within investment income and financing for short-term receivables when the recognition of interest costs in the income statement. The Group does not use would be immaterial. derivative financial instruments for speculative purposes. Cash and cash equivalents Derivative financial instruments are initially measured at fair Cash and cash equivalents includes cash-in-hand and value on the contract date and are subsequently remeasured deposits held at call with banks. to fair value at each reporting date. Hedge accounting is discontinued when the hedging Trade payables instrument expires or is sold, terminated, or exercised, or Trade payables are other financial liabilities initially measured no longer qualifies for hedge accounting, or the Company at fair value and subsequently measured at amortised cost. chooses to end the hedging relationship. Financial liabilities and equity instruments Fair value hedges Financial liabilities and equity instruments issued by the Group The Group uses derivative instruments (primarily interest are classified according to the substance of the contractual rate swaps) to manage its interest rate risk. The Group arrangements entered into and the definitions of a financial designates these as fair value hedges with changes in fair liability and an equity instrument. An equity instrument is any value of the hedging instrument recognised in the income contract that evidences a residual interest in the assets of statement for the year together with the changes in the fair the Group after deducting all of its liabilities and includes value of the hedged item to the extent the hedge is effective. no obligation to deliver cash or other financial assets. The accounting policies adopted for specific financial Headline results and exceptional items liabilities and equity instruments are set out below. Headline results are stated before the amortisation of • Loans and other borrowings acquisition intangibles and exceptional items. Exceptional items are those that are considered to be one-off, non- Loans and other borrowings represent committed and recurring in nature and so material that the Directors believe uncommitted bank loans, bank overdrafts, and loans from that they require separate disclosure to avoid distortion related parties. These are initially measured at fair value (which of underlying performance and should be separately is equal to cost at inception), and are subsequently measured presented on the face of the income statement. Further at amortised cost, using the effective interest rate method, details of the exceptional items are provided in note 9. except where they are identified as a hedged item in a fair value hedge. Any difference between the proceeds net of Critical judgements in applying the Group’s transaction costs and the settlement or redemption of accounting policies borrowings is recognised over the term of the borrowing. In the process of applying the Group’s accounting policies Bank fees and legal costs associated with the securing of management has made the following judgements that have external financing are capitalised and amortised over the the most significant effect on the amounts recognised in term of the relevant facility. All other borrowing costs are the financial statements. Estimates and assumptions used recognised in the income statement in the period in which in the preparation of the financial statements are continually they are incurred. reviewed and revised as necessary. Whilst every effort is made to ensure that such estimates and assumptions are reasonable, Bank overdrafts that are repayable on demand and form an by their nature they are uncertain, and as such changes in integral part of the Group’s cash management are included estimates and assumptions may have a material impact. as a component of cash and cash equivalents for the purpose of the statement of cash flows.
TalkTalk Telecom Group PLC | Annual Report 2011 Overview Performance review Governance Financial statements Other information 55
Annual Report2011
| TalkTalk Telecom Group PLC PLC Group Telecom TalkTalk IAS 32 (amended) ‘Classification of Rights Issues’ IFRIC ‘Extinguishing 19 Financial Liabilities with Equity Instruments’ IFRIC (amended) 14 ‘Prepayments of a Minimum Funding Requirement’ Improvements to IFRSs (May 2010) Future accounting developments authorisation financialof these date of statements, the At InterpretationsStandardsfollowingnot and whichthe have issuefinancial these in statementsin applied were been been yet not cases effectivehad some yet in butnot (and EU): the by adopted • • • • other the adoptionof expect the not that Directors The do impactthe material on a have standardswill above listed periods. future in financial Group the statements of
indication of impairment also requires judgement. indicationimpairmentrequires also of
(note 11). 11). (note (note 11). The carryingThe goodwill£471m of is value 11). (note
indicationidentified,impairment is of further judgement
any
appropriate discount rates, to use to calculate presentto use discountappropriate to rates, appropriate discount rates, to use to calculate present to use discountappropriate to rates, both the future cash flows of the CGUs and the selection the and CGUs the cashfuture flows of the both
an
are inevitably are estimates,only differwhich may those from ultimatelyincurred. Provisions based are provisions other and reorganisation Group’s The managementthe best at information the availableto on costsfuture assumedthe However, balancedate. sheet relevant jurisdictions for the foreseeable future, and on future,and foreseeable jurisdictionsrelevant the for of value suchthe as and force, legislationin tax then the uncertain.assets is tax associated deferred Deferred taxation utilised lossescandependsbe which tax extent The to the in generated are profits taxable which to extent the on recognised and hence the value of the bad and doubtful and bad the of value hencethe recognisedand historical in on basedtrends debt. provisionsTheseare recovered. not whichpercentagedebtsare of the Trade andTrade other receivables likelihood the evaluate to order in required Judgement is collection of beencustomer afterhas of debt revenue allocated to. The value in use calculation involves estimation of of estimation involves calculation use in value The to. allocated selection the and CGUs the cashfuture flows of the both of values has If carryingassess whether the to canrequired beamount is assetis the that CGU the of use in supportedvalue the by selected.periodassessmentThisestimation the requires of assets.benefit the will Group from whichthe over carrying whetherDeterminingthe assets these of amount Intangible assets and property, plant and equipment assets these usefuleconomic of assessmentlivesThe the of charged is amortisation and Depreciation judgement. requires usefuleconomiclife income the statement on the based to of values balancedate.sheet restated) the at as £470m, : (2010 Determining whether goodwill is impaired requires estimation requires whether Determininggoodwillimpaired is been has goodwill the which to CGUs the of use in value the of calculation use allocated.in valueinvolves estimationThe of Goodwill 56
Notes to the consolidated financial statements continued
2. Segmental reporting
IFRS 8 ‘Operating Segments’ requires the segmental information presented in the financial statements to be that used by the chief operating decision maker to evaluate the performance of the business and decide how to allocate resources. The Group has identified the Board as its chief operating decision maker. The Board considers the results of the business as a whole when assessing the performance of the business and making decisions about the allocation of resources. Accordingly the Group has one operating segment. During the previous financial year the Group incurred costs in respect of CPW (‘CPW costs’). These costs are not reflective of the ongoing costs of the Group and have been disclosed separately, the costs of the demerger (note 9) are shown within CPW costs.
Operations CPW costs Total
Year ended 31 March 2011 £m £m £m Revenue 1,765 – 1,765 Headline EBITDA 276 – 276 Depreciation (57) – (57) Amortisation of operating intangibles (26) – (26) Share of results of joint venture (1) – (1) Headline profit before interest and taxation 192 – 192 Amortisation of acquisition intangibles and exceptional amortisation* (66) – (66) Exceptional items – Operating expenses (note 9) (48) – (48) Exceptional items – Depreciation (note 9) (3) – (3) Operating profit 75 – 75
Operations CPW costs Total
Year ended 31 March 2010 £m £m £m Revenue 1,686 – 1,686 Headline EBITDA 230 (9) 221 Depreciation (46) – (46) Amortisation of operating intangibles (24) – (24) Headline profit before interest and taxation 160 (9) 151 Amortisation of acquisition intangibles and exceptional amortisation* (87) – (87) Exceptional items – Operating expenses (note 9) (29) (18) (47) Exceptional items – Depreciation (note 9) (1) – (1) Operating profit 43 (27) 16
* Comprises £62m of amortisation on acquisition intangibles (2010 : £83m) and £4m of exceptional amortisation (2010 : £4m) (note 9).
The Group’s revenue is split by broadband, non-broadband and corporate products. Broadband and non-broadband comprise residential customers and business customers that receive similar products.
2011 2010 £m £m Broadband 1,247 1,086 Non-broadband 189 273 Corporate 329 327 1,765 1,686
The Group has no material overseas operations, as a result a split of revenue and total assets by geographical location has not been disclosed. The Group entered into an agreement to sell its operations in Belgium and Ireland on 31 March 2010 and 19 April 2010 respectively. These operations contributed revenue of £16m in the year ended 31 March 2010 to the non-broadband channel.
TalkTalk Telecom Group PLC | Annual Report 2011 Overview Performance review Governance Financial statements Other information
3 4 1 4 4 6 57 16 24 25 20 46 40 83 £m £m £m 0.1 1.5 2.0 2.5 0.2 6.3 145 168 164 164 2010 2010 2010 2010 4,572 2,226 2,346 Number
3 4 3 4 4 9 16 19 57 57 26 62 33 £m £m £m 0.1 3.4 8.4 2.4 0.2 2.3 Annual Report 2011 135 154 154 158 2011 2011 2011 2011
| 4,077 1,988 2,089 Number TalkTalk Telecom Group PLC PLC Group Telecom TalkTalk Directors in the prior year. prior the Directors in
Benefits Pension costs Share-based payments Salaries and fees Performance bonuses Executive Board and Board of Directors in the current year and the TalkTalk Group Executive Board and an allocationExecutivethe an Group of and Board TalkTalk the and currentyear the Directors in of Executive Board and Board CPW Compensation earned by Key Management is analysed below. The Key Management Personnel comprised the TalkTalk Group Group TalkTalk the comprised Personnel Management Key The below. analysed is Management Key by earned Compensation Share-based payments (note 5) Wages and salaries Social security costs Other pension costs (note 26) The aggregate remuneration recognised in respect of these employees in the incomestatement the comprised: employees in these respect remunerationrecognisedof in aggregate The Sales and customer management Administration 4. Employee costs employees(including of numberExecutive average The was: Directors) Rentals under operating leases – other Share-based payments Staffcosts, excluding share-based payments Cost of inventories recognised in expenses Rentals under operating leases – property Amortisation of operating intangible fixed assets Impairment of property, plant and equipment Impairment of operating intangible fixed assets Impairment loss recognised on trade receivables Depreciation of property, plant and equipment Amortisation of acquisition intangibles Group profit before interest and taxation is taxation afteris stated and interest profitcharging: before Group 3. Profit3. before interest and taxation 58
Notes to the consolidated financial statements continued
5. Share-based payments
The Group issues equity settled share-based payments to certain employees through the schemes set out in the analysis below. The Group’s share schemes are the Discretionary Share Option Plan (‘DSOP’), Value Enhancement Scheme (‘VES’) and Save-As-You-Earn scheme (‘SAYE’). These schemes are disclosed within section (a) of this note to the accounts. In addition, the Group has a number of legacy Carphone Warehouse Group schemes which are disclosed within section (b) of this note to the accounts. The Group recognised a charge of £4m in the year ended 31 March 2011 (2010 : £4m) in respect of equity settled share-based payments. In the prior year a charge of £3m was taken directly to reserves in respect of the CPW TTG VES as part of the demerger accounting. In order to aid the user of the accounts, the dilutive effect of each of the TalkTalk Group schemes and legacy schemes has been presented. This has been calculated using an average share price for the financial year of £1.38 (2010 : £1.27).
(a) TalkTalk Telecom Group PLC schemes
During the year the Group introduced the following two schemes: (i) The DSOP. The scheme uses share options to provide long-term incentives to senior management. Awards made under the DSOP are subject to TSR performance targets and are measured over an initial performance period to 29 March 2013, and a subsequent performance period to 29 March 2014. Options are forfeited if an employee leaves the Group before the options vest. (ii) The SAYE share option scheme. The scheme permits the granting of options to employees linked to a bank SAYE contract for a term of three or five years. Contributions from UK employees range from £5 to £250 and Ireland employees range from€ 12 to €500 per month. Options may be exercised at the end of the three or five year period at an exercise price of £1.02 per share.
DSOP SAYE 2011 2011 2011 2011 Number WAEP Number WAEP million £ million £ Outstanding at the beginning of the year – – – – Granted during the year 29 1.25 8 1.02 Forfeited during the year (5) 1.27 (1) 1.02 Outstanding at the end of the year 24 1.24 7 1.02 Exercisable at the end of the year – – – –
Weighted average remaining contractual life (years) 9.0 3.1 Dilutive effect (millions) 0.5 0.6 Valuation method Monte Carlo Black Scholes Share price (pence) 132 124 Exercise price (pence) 127 102 Expected volatility 37.4% 42.4% Expected exercise (years)* 6.5 3.7 Risk free rate* 3.4% 1.9% Expected dividend yield 3.8% 3.7% Fair value of options granted (£m) 9m 3m
* The difference in the schemes reflects the timing of expected exercise date.
No options were exercisable either during the year or at the year end. Of the DSOP options granted 472,000 were nil priced.
TalkTalk Telecom Group PLC | Annual Report 2011 Overview Performance review Governance Financial statements Other information 59
Annual Report 2011
| holding companyholding
TalkTalk Telecom Group PLC PLC Group Telecom TalkTalk criteria are not met, the A shares will have no value. no have will shares A met, the not criteria are
shares. If the performance criteria are not met, the C shares will have no value. no have will performanceshares the Ifshares.C met, the not criteria are to September 2013, at which point participants have a put option over the remainder of their shares. If the Ifshares. their of remainder which participantspointat the over optionput a 2013, have September to
Group’s operating businesses. The Group has an obligation to acquire these shares if certainif shares these acquire performanceobligation to operatingan businesses. has Group conditionsThe Group’s performance period to September 2012, at whichparticipantspointat 60% shares,andover optionput their performancea of have 2012, September periodto
advanced loans to participants to enable them to purchase C shares in TalkTalk Group Limited, Group the TalkTalk in shares C purchase participants to advanced them to enable loans to based on the market capitalisations of the Group and Carphone Warehouse Group plc in the 5 days following demerger. demerger. followingdays 5 the in plc Group Carphonecapitalisations market and Warehouse the Group on the based of
estimated at the date of grant using a Monte Carlo model to initially value the A shares and then a Black Scholes model model Scholes Black a then and shares A the value initially to model Carlo Monte a using grant of date the at estimated share of value describedvalue performanceThese above.of initialperformance an share over conditionsmeasured periodto are met, to provide to participants the share of value described above. These performance conditions are measured over an an over measured are conditions performance These above. described value of share participantsthe to provide to met,
their the calculate the option value. The model combines the valuation price of a share at the date of grant with the probabilitywith grantthe of date the at share valuationa combines modelprice of the The value. calculateoption the meeting performance criteria, based on the expected value of the Group at the date of grant discounted for the lack of of lack the for discounted grant of date the at Group the of value expected the on based criteria, performance meeting therefore not necessarily representative of the WAEP that might apply on an ongoing basis. ongoing an on apply might that WAEP the of representative necessarily not therefore equity volatility of 149.9% and 139.0% for September and September 2012 options 2013 respectively; a risk free rate of 1.9% and 2.3% for September and September 2012 options 2013 respectively; and a dividend yield of nil. volatility of 22%; a risk free rate ranging from 0.5% to 2.7%; and a dividend yield of between 0% and 5% in eachof the three yearsSeptember to 2013.
subsequent performance period to September 2013, at which point participants have a put option over the remainderwhichparticipantspoint at the over optionputsubsequent performancea 2013, have September periodto
is see above. see the of that is analysis this throughout used WAEP year prior The schemes. CPW legacy other the WAEP summarise table year below prior The The demerger. at CPW within Group the of value relative the reflect to adjusted as payments share-based The CPW TTG VES has a potentially dilutive effect of 11 million shares (2010 : 10 million shares), which has been included been which has shares), million 10 : (2010 shares million potentiallydilutive CPW a effectThe has TTGVES 11 of calculations.EPS diluted the in shares, A TTGVES the assumptionsfor calculatedsame as was the usingshares CPW the C TTGVES of value fair The are initial a of were issued. The Group’s opening share price for this purpose represents an allocation of the share price of CPW pricethatof at share allocation the an purposerepresentsof this pricefor share opening issued.Group’s The were date, CPW of valuationAprilcapitalcapitalinvestedinvested2009,representing changes in 1 date. sinceat that for relevant adjustedas CPW the of value The capital. invested this on 7% of return of rate annual minimum a after measured is value incremental The shares the which on date the from price share Group’s the of value the in change any for vesting on adjusted is pool VES TTG (b) Legacy(b) Carphone Warehouse schemes CPW TTG VES opening an over Group the of value the in increase any of 2.24% to CPWThe up participantsenablesTTG VES in share to • • • • • • year: the in awarded shares A the Black Scholesfor modelthe in used assumptionsfollowing The were marketabilityshares. the of year: the in awarded shares A the Carlofor model Monte the in used assumptionsfollowing The were The fair value of the schemes, which has performance targets based on the growth of the market capitalisation of the Group, Group, the of capitalisation market the of growth the on based targets performance has which schemes, the of value fair The was to of performance the included been in which has shares), million 28 : potentiallydilutive a effect(2010 has TTGshares VES Themillion 22 of calculation.EPS diluted business. The Group has an obligation to acquire these shares if performance conditions are met, to provide to participantsperformanceif shares to these provideacquire conditionsmet,obligation to to an are business.has Group The the subsequentwhich participantsperformancepointat 60%a over shares,and optionput their a of have 2012, September period representing invested capital at 1 April 2009, adjusted as relevant for changes in invested capital since that date. The incremental incremental The date. that since capital invested in changes valuationopening for an over Group the of value the in increase any of 7% relevant to up participantsenablesTTG VES Thein share as to adjusted 2009, April 1 at capital invested representing capital.invested this advancedto on Group loans 7%The of return of rate annual after minimum measured a is value operating Group’s the companyLimited, holdingof Group the TalkTalk in shares A purchase participantsto them enable to TTG VES 60
Notes to the consolidated financial statements continued
5. Share-based payments (continued)
Performance share plan(1)
2011 2011 2010 2010 Number WAEP Number WAEP million £ million £ Outstanding at the beginning of the year 13 – 22 – Forfeited during the year (8) – (2) – Exercised during the year (1) – (7) – Outstanding at the end of the year 4 – 13 – Exercisable at the end of the year 4 – 6 –
Weighted average contract life (years) 4.4 6.6 Options exercised in the year weighted average market price (£) 1.36 1.11 Dilutive effect (millions) 5.6 5.9
ESOS(2)
2011 2011 2010 2010 Number WAEP Number WAEP million £ million £ Outstanding at the beginning of the year 5 0.78 8 0.60 Exercised during the year (2) 1.05 (3) 0.55 Outstanding at the end of the year 3 0.53 5 0.66 Exercisable at the end of the year 3 0.53 5 0.66
Weighted average contract life (years) 1.6 1.7 Options exercised in the year weighted average market price (£) 1.35 1.13 Dilutive effect (millions) 2.4 2.1
TalkTalk Telecom Group PLC | Annual Report 2011 Overview Performance review Governance Financial statements Other information £ – – – 61 2010 0.51 0.63 WAEP
9 – 7 – (2) 8.7 4.3 Annual Report 2011
2010 1.10 | 12.3 million Number £ – 2011 0.51 0.51 0.51 0.51 WAEP 7 – 3 3 (4) 7.7 3.5 2011 2011 11.5 1.28 million TalkTalk Telecom Group PLC PLC Group Telecom TalkTalk Number (3) The ESOS options have already vested. If the options remain unexercised after a period of ten years from the date of grant, the options expire. The options These awards are subject to initial performance conditions, principally in relation to earnings and cash generation, over a period to March 2010. For awards made in July 2004 these performance conditions have been met and the options vested. For awards made in the years endedMarch 31 2007 These options have all vested. and March 31 2008 the performance conditions were not met and lapsed during the year. analysis includes 2 million (2010 : 3 million) options that were granted before 7 Novemberhas been recognised 2002. In accordance in respect of these with options. IFRS2 ‘Share-based payment’, no cost In December 2008, 3.6 million shares were gifted by Carphone Warehouse’s Employee Benefit Trust to certainTrustto December Benefit In seniorEmployee2008, gifted Carphonewere Warehouse’s by shares million 3.6 performance all when restricted2010, 30June untilwere shares The Group. Carphone Warehouse the employeesof achieved.criteria were Share gift (2) (3) Total dilutiveTotal effect of legacy schemes (1) Weighted average contract life (years) Options exercised in the year weighted average market price (£) Dilutive effect (millions) Outstanding at the end of the year Exercisable at the end of the year Outstanding at the beginning of the year Forfeited during the year Exercised during the year Other employee share option schemes 62
Notes to the consolidated financial statements continued
6. Finance costs and investment revenue
Finance costs are analysed as follows:
2011 2010 £m £m Interest on bank loans and overdrafts 13 7 Facility fees and similar charges 3 1 Unwinding of discount on provisions 2 2 Demerger fees (note 9) – 1 18 11
Investment revenue is analysed as follows:
2011 2010 £m £m Interest on loans to related parties – 5 Other interest receivable – 1 – 6
Loans to Carphone Warehouse Group plc were settled as part of the demerger (note 28).
7. Taxation
The tax charge comprises:
2011 2010 £m £m Current tax: UK Corporation tax – 13 Overseas tax – 1 – 14 Adjustments in respect of prior years: UK Corporation tax (18) (2) Total current tax (18) 12
Deferred tax: Origination and reversal of timing differences 18 5 Effect of change in tax rate 9 – Adjustments in respect of prior years – reclassification from current tax 18 – Adjustments in respect of prior years – deferred tax recognised (5) (3) Total deferred tax 40 2
Total tax charge 22 14
The tax charge on Headline earnings for the year ended 31 March 2011 is £52m (2010 : £41m) representing an effective tax rate on pre-tax profits of 30% (2010 : 28%). The tax charge on Statutory earnings for the year ended 31 March 2011 is £22m (2010 : £14m). The reconciliation between the Headline and Statutory tax charge is shown in note 9. There has been a reclassification of £18m (2010 : nil) in the year from current tax to deferred tax to better reflect expected utilisation of losses.
TalkTalk Telecom Group PLC | Annual Report 2011 Overview Performance review Governance Financial statements Other information
1 3 – 2 63 (1) (1) (2) (5) 15 11 14 16 £m 50 £m £m £m Total Total (40) 116 155 155 2010 108 2010
2 9 2 2 – – 4 – 2 – – 2 (2) (5) 20 £m 16 57 22 £m £m £m Annual Report 2011 2011 2011
| differences differences Other timing Other timing 8 – 3 5 – (1)
£m £m (12) (19) (19) (27) Timing Timing acquisition acquisition intangibles intangibles differences on differences on – – – 74 45 35 85 85 £m £m (24) (40) TalkTalk Telecom Group PLC PLC Group Telecom TalkTalk Tax lossesTax lossesTax
– – – (9) 14 76 42 29 85 85 £m £m costs costs Timing Timing differences differences on capitalised on capitalised 2 2 – 3 2 1 – 2 (1) (1) £m £m payments payments Share-based Share-based in a tax charge to the Income statement as the value of the Group’s tax assets has been reduced. been assets has tax Group’s the of value Income statement the the as to charge tax a in
resulted
26%. Accordingly the tax assets and liabilities recognised at 31 March 2011 take account of these changes.account these take of 2011 March 26%.liabilitiesassets31 Accordinglyand recognised at tax the
to has
Tax on items recognised directly in retained earnings and other reserves are as follows: as reserves other earningsare and recognisedretained directly items in on Tax Effect of change in tax rate Adjustments in respect of prior years tax chargeTotal through income statement Profit before tax at 28%Tax : 28%)(2010 Items attracting no tax relief or liability At 31 MarchAt 31 2010 At 1 April 2009 Credit (charge) to the income statement Charge to reserves Acquisition of subsidiaries At 31 MarchAt 31 2011 At 1 April 2010 (Charge) credit to the income statement Credit to reserves Acquisition of subsidiaries The deferred tax assets recognised by the Group and movements thereon during the year are as follows: as are year the during movements thereon and Group the assets recognised by tax deferred The The movement for both the year ended 31 March 2011 and 31 March 2010 relates to share-based payments. to relates 2010 March 31 and 2011 March 31 ended year the both movementfor The Deferred tax (credit) charge tax chargeTotal through retained earnings and other reserves of 28% (2010 : 28%) to the profit before tax are as follows: as are tax profit before the to 28%) : 28%(2010 of The principal differences between the tax charge and the amount calculated by applying the standard rate of UK corporation UK principalThe differencesof taxcalculatedstandard amount applying rate the the by and chargebetween tax the 28% This No deferred tax assets and liabilities have been offset in either year, except where there is a legal right to do so in the in so do to rightlegal a is there where except offsetbeen liabilitiesassets eitherand have year, tax in deferred No jurisdictions.relevant from down Statutory UK rate two enactedCorporation reductionsthe bringingthe year of were Duringin the tax rate 64
Notes to the consolidated financial statements continued
7. Taxation (continued)
At 31 March 2011, the Group had unused tax losses of £1,016m (2010 : £957m) available for offset against future taxable profits. A deferred tax asset of £45m (2010 : £85m) has been recognised in respect of £173m (2010 : £304m) of such losses, based on expectations of recovery in the foreseeable future. No deferred tax asset has been recognised in respect of the remaining £843m (2010 : £653m) as there is insufficient evidence that there will be suitable taxable profits against which these losses can be recovered. All losses may be carried forward indefinitely.
8. Dividends
The following dividends were paid by the Group to its Shareholders:
2011 2010 £m £m Ordinary dividends Interim dividend for the year ended 31 March 2011 of 1.70p per ordinary share 15 – Final dividend for the year ended 31 March 2009 of 3.00p per ordinary share – 27 Interim dividend for the year ended 31 March 2010 of 1.45p per ordinary share – 13 Total ordinary dividends 15 40
Special dividends relating to the demerger Special interim dividend for the year ended 31 March 2010 of 3.20p per ordinary share – 29 Demerger dividend for the year ended 31 March 2010 of 19.88p per ordinary share – 182 Total special dividends – 211
Total dividends paid 15 251
The final dividend for the year ended 31 March 2011 is 3.90p per ordinary share on approximately 909 million shares (£35m), which was approved by the Board on 18 May 2011 and has not been included as a liability as at 31 March 2011. In the prior year the ordinary dividends were paid by CPW to its Shareholders. The special interim dividends of £29m were paid by CPW to its Shareholders. The demerger dividends of £182m were paid by CPW to Carphone Warehouse Group plc as part of the demerger transaction. The Group ESOT has waived its rights to receive dividends in the current and prior year and this is reflected in the analysis above.
9. Reconciliation of Headline information to Statutory information
Profit before Profit Profit for EBITDA interest and tax before tax the year
Year ended 31 March 2011 £m £m £m £m Headline results 276 192 174 122 Exceptional items – Operating expenses (a) (12) (12) (12) (9) Exceptional items – Operating expenses (b) (36) (36) (36) (28) Exceptional items – Depreciation (b) – (3) (3) (2) Exceptional items – Amortisation (b) – (4) (4) (3) Amortisation of acquisition intangibles (d) – (62) (62) (45) Statutory results 228 75 57 35
TalkTalk Telecom Group PLC | Annual Report 2011 Overview Performance review Governance Financial statements Other information
(1) (1) 65 (3) £m (3) (17) (24) (63)
106
the year Profit for
previous
(1) (1) (4) 11 £m Profit (18) Annual Report 2011 (29) (83) 147
| respectof
before tax in
– (1) (4) 16 £m (18) (29) (83) 151 Profit before respect of these costs. these respect of interest and tax
– – – – £m (18) (29) 174 221 EBITDA TalkTalk Telecom Group PLC PLC Group Telecom TalkTalk recognisedin
were incurred during the year ended 31 March 2011, principally comprising consultingredundancies and costs. 2011, March 31 ended year the incurredduring were
customers onto the Group’s unbundlednetwork. Group’s customersthe onto
A tax credit at 28% has been recognised in all periods in respect of the amortisation the respect periodsof in all acquisition recognisedin of been intangibles,anycredit28%has at tax of net A £20m). : (2010 2011 March 31 ended year the for adjustments£17m periods,respectpriorwas of in this costs of £18m and banking fees of £1m were incurred. A taxation credit of £1m was taxation£1m incurred. credit A of were £1m of fees banking and costs£18m of Amortisation(d) of acquisition intangibles During the year ended 31 March 2010, the Carphone Warehouse demerged the Company and it was separately listed on the separatelyon listedwas itCompany and the demerged Carphone Warehouse the 2010, March 31 ended year Duringthe processinternally, the managing London StockExchange.substantial incurred, for separation both be Therequired costs to activitiesIT separatingfrom Operating CPW. for by managedlist and companyto a external for the requirementsmeeting for been liquidated. No taxation has been recognised in respect of this credit. this respect recognisedof in been taxationliquidated. has No been Demerger(c) and other separation costs redundant software and fixed asset write downs (2010 : £5m). : softwareredundant (2010 asset downs fixed write and £6m). : costs these respect (2010 recognisedof in been has taxation£10m credit total of A entitieslegal which have to reservesrelation in recyclingrespectTranslation recognisedof of in been £4mhas credit of A backhaul solutions in order to provide one combined backhaul solution for the Group and to create a higher capacity higher a create network. to and Group combinedthe backhaul one solutionprovide for to backhaul order solutions in redundancies comprising principally 2011, March 31 ended year the during incurred were £40m of costs reorganisation Operating incurred were Costs£7m of £29m). : consulting and costsintegrationprojectclosures, team site (2010 an and of contracts,associated terminationof included assetswriteof downnetworkprogram the The the and integrationcoststo related backhaulcircuits. principally,of Tiscaliwithpreviouslycomprised acquiredThisthe contracted those those business both and itsacquisition Tiscali.to necessarypriorof was it Group thecontractsThesereplace as the terminated by to were for The One Company integration was implemented during the prior year following the acquisition of Tiscali UK on 3 July 2009.Julyacquisition the Tiscali3 following of on year prior UK the implementedCompanyduring integrationwas One The Tiscali the deliverefficienciesbusiness integrate and both operatingrevisitedto itsstructureoverall order Group The in in existingsignificantoperations.generated program Theduplicated elimination of migration the costssynergies, and through A total taxation credit of £3m has been recognised in respect of these costs. these respect recognisedof in taxation £3mbeen credit total of has A One(b) Company integration On 26 January 2011, a major restructure of the Group was announced to integrate technology and IT capabilities and consolidate consolidate and capabilities IT and technology integrate to announced was Group the of restructure major a 2011, January 26 On officeback functions.reduction headcount. reorganisationa in principally reorganisationresultwill The Operating in costs of £12m Headline information is provided because the Directors consider that it provides assistance in understanding underlying performance. underlying understanding in assistance provides it that consider Directors the because provided is information Headline Operating(a) efficiencies Exceptional items – Interest (c) Statutory results Exceptional items – Depreciation (b) Exceptional items – Amortisation (b) Amortisation of acquisition intangibles (d) Year ended March 31 2010 Headline results Exceptional items – Operating expenses (b) Exceptional items – Operating expenses (c) 66
Notes to the consolidated financial statements continued
10. Earnings per share
Basic and diluted earnings per ordinary share have been calculated in accordance with IAS 33 ‘Earnings per share’. EPS is shown on both a Headline and Statutory basis to assist in the understanding of the underlying performance of the Group.
2011 2010 £m £m Headline earnings (note 9) 122 106
Statutory earnings 35 (3)
Weighted average number of shares (millions): Shares in issue 914 914 Less weighted average holdings by Group ESOT (7) (16) For basic EPS 907 898 Dilutive effect of share options 45 50 For diluted EPS 952 948
2011 2010 pence pence Basic earnings (loss) per share Headline 13.5 11.8 Statutory 3.9 (0.3)
2011 2010 pence pence Diluted earnings (loss) per share Headline 12.8 11.2 Statutory 3.7 (0.3)
In the prior year the Group did not exist in the form that arose on demerger, the average actual shares in issue during the prior year do not provide a meaningful basis for calculating EPS. The prior year EPS has therefore been calculated based on the number of CPW shares in issue until demerger, the number of the Company’s shares in issue from that date, and the shareholding of the Group ESOT during the prior year. Diluted EPS has been calculated based on options held over CPW shares during these years and the Group’s proportion of the CPW share price over that period. The number of shares that could be issued but that are not considered to be dilutive at 31 March 2011 is 27 million (2010 : 7 million).
TalkTalk Telecom Group PLC | Annual Report 2011 Overview Performance review Governance Financial statements Other information
– 67 £m £m
470 470 132 166 338 304 2010 2010 *As restated *As *As restated
3 (2) £m £m Annual Report 2011 471 471 470 134 337 2011 2011
| TalkTalk Telecom Group PLC PLC Group Telecom TalkTalk
CGU. The allocation of goodwill across the CGUs is as follows: as allocation Theis goodwillCGUsCGU. of acrossthe
the of future market developments. The key assumptions for the forecast cash flows of each of the CGUs are based on expected customer growth rates, ARPU, direct costs including acquisition costsand change in product mix. The value assigned to each of these assumptionsbeen determined has based on the extrapolation of historical trends in the Group and external information on expected trends Capital expenditure Forecast capital expenditure is based on senior management expectations of required future investment in the networkand current run rate of expenditure. Customer factors the systematic risk of the CGU. The average pre-tax rate for both CGUs used to discount the forecast cash flows is 9.1% : 8.8%).(2010 The assumptions used in the calculation of the CGU’s discount rate are benchmarked to externally available data. The same discount rate has been applied to both CGUs due to the similarity of risk factors and geographical location. Long-term revenue growth rates applied are based on the growth rate for the UK per the OECD. The rate applied in the current year was 1.8% : 1.8%). (2010 Discount rate The underlying discount rate for each CGU is based on the UK ten-year gilt rate adjusted for an equityrisk premium and Long-term growth rates
material changes in the key assumptions that would cause the carryingrecoverableamount. assumptionscause the would the exceed that key goodwill of the to value changes materialin Sensitivity to changes in assumptions Sensitivityidentifiedreasonably not possibleDirectors have any assumptionthe performedand analysisbeen key each has for • • • derived from the most recent financial budgets approved by the Board or Management for the next three years and extrapolates and years three next the for Management or Board the by approved budgets financial recent most the from derived follows: as assumptions are key used years. The 17 following the for cash flows out • The Group tests goodwill annually for impairment or more frequently if there are indications impaired.goodwill are that be might frequentlythere if more impairmentgoodwill testsor annuallyGroup for The performedlevel. CGUis review Thisa at calculations.forecasts cash use flow in prepares value Group Thefrom determined are CGUs the recoverableamountsof The * The prior year balance sheet has been restated to reflect the finalisation of the Tiscali UK andTelco UK acquisition purchase prices (note 29). Residential Corporate The goodwill acquired in business combinations is allocated at acquisition to the CGUs that are expected to benefit that expected from to businessare goodwillthatThe combinationsCGUs in acquired allocatedacquisition the at is to costsassets relatingshared and Corporate.businessResidentialtwo combination.Group’s and The – CGUs has Group The use in value the of size relativeinfrastructure twoon allocated based CGUs acrossto the mainly central overheadsare and of Disposals (note 13) Closing net book value Opening net book value Acquisition of subsidiaries (note 13) (a) Goodwill(a) 11. Goodwill and other intangible assets intangible other and Goodwill 11. 68
Notes to the consolidated financial statements continued
11. Goodwill and other intangible assets (continued) (b) Other intangible assets
Other intangible assets are analysed as follows: Operating Acquisition Total other intangibles intangibles intangibles
£m £m £m Opening balance at 1 April 2010 126 190 316 Additions 28 3 31 Amortisation (26) (62) (88) Impairment charges (4) – (4) Closing balance at 31 March 2011 124 131 255
Cost (gross carrying amount) 207 328 535 Accumulated amortisation (83) (197) (280) Closing balance at 31 March 2011 124 131 255
Operating Acquisition Total other intangibles intangibles intangibles
£m £m £m Opening balance at 1 April 2009 114 176 290 Additions 35 – 35 Acquisition of subsidiaries 5 97 102 Amortisation (24) (83) (107) Impairment charges (4) – (4) Closing balance at 31 March 2010 126 190 316
Cost (gross carrying amount) 179 333 512 Accumulated amortisation (53) (143) (196) Closing balance at 31 March 2010 126 190 316
Operating intangibles includes internally generated assets of net book value £5m (2010 : £6m), which are amortised over a period of up to five years. Included within Operating intangibles are the following assets which are material to the Group: • TRIO, the customer billing system, which has a net book value of £91m (2010 : £86m). TRIO is amortised over a period of up to eight years depending on the release date of relevant component. The weighted average remaining useful economic life of the components of TRIO is six years. Acquisition intangibles are removed from cost in the analysis above once fully amortised.
TalkTalk Telecom Group PLC | Annual Report 2011 Overview Performance review Governance Financial statements Other information 3 69 97 £m £m Total Total (62) (83) 131 131 176 190 190 190 328 333 (197) (143) 3 5 2 5 2 2 – – – – – (2) (3) (6) £m £m Annual Report 2011 Other Other
|
– 9 – – – – – – – – – – – (9) £m £m Customer Customer agreements agreements revenue share revenue share 3 £m 92 £m (68) (60) bases bases 131 131 188 188 188 164 328 328 (197) (140) Customer Customer TalkTalk Telecom Group PLC PLC Group Telecom TalkTalk from royalty from method.
Tiscali customerbase which has a net book value of £59m and a remaining : £77m) (2010 useful economic life of 39 months months). : 51 (2010 AOL broadband customer base which has a net book value and of £69m a remaining : £107m) (2010 useful economic life of 22 months : 34 (2010 months); and • analysisamortised.fullyonce above the cost Acquisitionin from removed intangibles are economic life at 31 March 2011: 2011: March 31 at economic life • Other acquisition intangibles primarily represents licences to continue to use the AOL and Tiscali and brands,theOther using valued AOL acquisition the use intangibles continueprimarily licences to represents to relief useful remaining their and Group the Includedto material within assets Acquisitionfollowingwhich are the intangibles are Customer revenue share agreements arose on the acquisition of AOL’s UK internet accessinternet UK rights,business, represent and acquisition the AOL’s of on agreementsarose share Customer revenue agreement, the access customersAOL customers performancetransactionalfrom by and subjectof generatedon to revenues share criteria,a expected to flows cash future discounted the from derived again was rights these of valuation The sites. AOL afterdeductioncontributory a for assets. Customer bases relate primarily to the AOL UK internet accessinternetDecember UK business in 2006acquired which AOL was Tiscali the the primarily and to Customer relate bases accessinternet2009.Julydiscounted UK businessin the acquired which derivedwas customerfrom valuationis The of bases cash them, future deduction flowsexpectedafter a contributoryfor from assets. Closing balance Marchat 31 2010 Closing balance Marchat 31 2010 Cost (gross carrying amount) Accumulated amortisation Opening balance at 1 April 2009 Acquisition of subsidiaries Amortisation Closing balance March at 31 2011 Closing balance March at 31 2011 Cost (gross carrying amount) Accumulated amortisation Opening balance at1 April 2010 Acquisition of subsidiaries Amortisation Acquisitionfollows: analysed intangiblesas are 70
Notes to the consolidated financial statements continued
12. Property, plant and equipment Network equipment and Leasehold computer Fixtures and improvements hardware fittings Total
£m £m £m £m Opening balance at 1 April 2010 7 254 1 262 Additions – 87 1 88 Depreciation (1) (55) (1) (57) Impairment charges – (3) – (3) Closing balance at 31 March 2011 6 283 1 290
Cost (gross carrying amount) 6 442 6 454 Accumulated depreciation and impairment charges – (159) (5) (164) Closing balance at 31 March 2011 6 283 1 290
Network equipment and Leasehold computer Fixtures and improvements hardware fittings Total
£m £m £m £m Opening balance at 1 April 2009 3 215 1 219 Additions 5 61 1 67 Acquisition of subsidiaries – 24 – 24 Disposals – (1) – (1) Depreciation (1) (45) (1) (47) Closing balance at 31 March 2010 7 254 1 262
Cost (gross carrying amount) 8 394 2 404 Accumulated depreciation and impairment charges (1) (140) (1) (142) Closing balance at 31 March 2010 7 254 1 262
13. Non-current asset investments
£m Cost and net book value at 1 April 2009, 31 March 2010 and 31 March 2011 1
Non-current asset investments at 31 March 2011 and at 31 March 2010 relate to a 11.3% interest in Shared Band Limited, a telecommunications technology provider. The Group holds a strategic, non-controlling interest. These shares are not held for trading and accordingly are classified as available for sale. The fair value of the shares is based on cost less any provision for impairment, as the shares are not listed on an exchange, and therefore a market price cannot be reliably measured.
(a) Principal Group investments
The Group has investments in the following subsidiary undertakings, which principally affected the profits or losses or net assets of the Group. To avoid a statement of excessive length, details of investments which are not significant have been omitted. All holdings are in equity share capital and give the Group an effective holding of 100% on consolidation.
TalkTalk Telecom Group PLC | Annual Report 2011 Overview Performance review Governance Financial statements Other information 71
Annual Report 2011
| Limitedat
the nature of the of nature the
Nature of business Holding company Holding company Telecommunications Telecommunications Telecommunications Telecommunications Telecommunications Telecommunications Telecommunications Telecommunications TalkTalk Telecom Group PLC PLC Group Telecom TalkTalk
Country of incorporation or registration England andWales England andWales England and Wales England and Wales England and Wales England and Wales England and Wales England and Wales England and Wales England and Wales
subsidiaries were either liquidated, merged or sold. This includes nine overseas entities.overseasincludessold. This nine either or liquidated, subsidiaries merged were
28 resulted in goodwill and acquisition intangibles of £1m. goodwillacquisition in and resulted £1m. intangibles of
of cash acquired.of within its income statement in respect of the increase in fair value of the equity interest held in Opal 2CCHequityOpal the in held of interest value fair in withinincrease itsincomestatementthe respect of in
customer numbers was agreed between the Group and Tiscali S.p.A. This resulted in an adjustment to goodwill of £14m. Tiscali and between S.p.A. customerGroup agreed numberswas the goodwill£14m. adjustment of an to in resulted This acquisition date. The goodwill of £3m was recognised relating to the future opportunitiesfuture the acquisitiongoodwill£3mto Therecognised relating of was arisingdate. from
March 2011 had the businesses been acquired on 31 March 2010, is immaterial. The Group has recognised a gain of gain recogniseda has immaterial.Group The is 2010, March 31 businesseson acquired been the had 2011 March £1m (as restated), which resulted in acquisition intangibles of £2m and goodwill of £4m (as restated). The £1m deferred £1m The restated). goodwillacquisition£4m(as and of in which restated),resulted £2m intangibles of (as £1m financial statements’ (see note 29). There have been no subsequent changes to the fair value adjustments disclosed in the the in disclosed adjustments value fair the to changes subsequent no been have There 29). note (see statements’ financial
of £2m and closure costs for the business of £2m, resulting in nil profit or loss on disposal. on loss profit or nil resultingin £2m, business of the costsclosure and for £2m of (iii) Disposals consideration £4m.a profit Theof for Ireland itsoperations sell in to agreement an into entered Group the April2010 19 On 2006 in Ireland acquisition offsetgoodwillthe Tele2 impairmentbeen businessof recognisedon of the has the by of sale on consideration was paid in the year ended 31 March 2011. The impact of this acquisition on the results of the Group for the for Group the acquisitionresultsof impactthis the The of on 2011. March 31 ended year the consideration in paid was 2009,March immaterial.goodwill£4m The 31 of were on businessacquired been the had and 2010, March 31 ended year fit businessLimited’s with and (GB) Telco opportunities UK future of the nature the to recognised relating was arisingfrom existing operations. Group’s the In the year ended 31 March 2010, the Group acquired UK Telco Limited for cash consideration of £5m and deferred consideration consideration deferred and £5m of consideration cash which for Limited Telco UK acquired Group the 2010, March 31 ended year the In of £1m the existing operations. businessesfit Group’s the with and Networks V respect of in consideration Limited buyoutsdeferred dealer and cash considerationpaid £1m Group The of The Group acquired Opal 2CCH Limited (formerly ‘2 Circles Communications Holdings Limited’) and Southern Communications Communications Southern and Limited’) Holdings Communications Circles ‘2 (formerly Limited 2CCH Opal acquired Group acquisition in The resulted which £2m, of consideration deferred and £2m of acquired cash of net consideration cash for Limited ended year the for Group goodwillthe £3m. acquisitionsand resultsof of impact these The£2m the intangibles of of on 31 consideration. Net cash outflows in the year ended 31 March 2010 comprised gross cash consideration £238m of consideration. 2010 offsetMarch 31 cashNet by outflows ended year the in £3m (ii) Other acquisitions of Non-Statutory 2010. March 31 ended year financial the for statements settlementrespect the adjustment the to the of in of 2011 March 31 ended year the in £14m cash inflows net of were There On 3 July 2009, the Group acquired the entire issued share capital of Tiscali UK for a gross cashconsideration gross capital£238m,a Tiscaliissuedof share 2009,entire for of July UK the acquired 3 On Group the adjustmentworkingrespectcapital net of in a August 2010 comprising2 On £236m fees. cash of considerationof £2m and ‘Presentation 1 IAS of requirements and the with line in £162m to restated been has year prior the in goodwill of value carrying The (b) Acquisitions(b) and disposals (i) Tiscali UK As part of the One Company integration, the Group’s subsidiaries have been reduced from 67 to 39 in the year. year. the in 39 to 67 from reduced been subsidiaries have CompanyGroup’s integration,One part As the the of These CPW Network ServicesLimited Tiscali UK Limited * Directly held by the Company. TalkTalk Direct LimitedTalkTalk UK CommunicationTalkTalk Services Limited GIS Telecoms Limited TalkTalk CommunicationsTalkTalk Limited (formerly Opal Telecommunications Limited) Onetel Telecommunications Limited Telecom LimitedTalkTalk Name Group LimitedTalkTalk Telecom HoldingsTalkTalk Limited* 72
Notes to the consolidated financial statements continued
14. Interest in joint venture
On 10 September 2010 the Group entered into a joint venture agreement with The British Broadcasting Corporation, ITV Broadcasting Limited, British Telecom PLC, Channel Four Television Corporation, Arqiva Limited and Channel 5 Broadcasting Limited to form YouView TV Limited (formerly Canvas Pro Tem Limited). The Group holds 14.3% of the ordinary share capital of YouView TV Limited. The joint venture has been set up in order to develop a new free-to-air internet-connected TV service to UK homes in 2012. The table below sets out the net additions in the year.
Net assets
£m Opening balance at 1 April 2010 – Initial recognition of investment – Additions 5 Share of results (1) Closing balance at 31 March 2011 4
The Group’s share of the results, assets and liabilities of its joint venture are as follows:
2011 2010 Group share of results of joint venture £m £m Revenue – – Expenses (1) – Loss before taxation (1) – Taxation – – Loss after taxation (1) –
2011 2010 Group share of net assets of joint venture £m £m Non-current assets 3 – Cash and overdrafts (net) 2 – Other liabilities (1) – Net assets 4 –
At 31 March 2011 the Group had committed to pay £14m to YouView TV Limited payable over the three year period to 31 March 2014.
15. Inventories
2011 2010 £m £m Goods for resale 3 2
The difference between the balance sheet value of inventory and its replacement cost is considered by the Directors not to be material.
TalkTalk Telecom Group PLC | Annual Report 2011 Overview Performance review Governance Financial statements Other information
8 3 73 (2) (6) (7) 10 31 26 28 22 £m £m £m £m (22) (37) (37) 123 150 102 180 160 160 160 183 2010 2010 2010 2010 *As restated *As
7 2 (3) (5) (6) 10 78 59 33 20 20 £m £m £m £m 44 (17) (31) (31) Annual Report 2011 157 155 102 109 109 109 2011 2011 2011 2011
| TalkTalk Telecom Group PLC PLC Group Telecom TalkTalk total revenue in the year, adjusted to take account of the timing of acquisitions, was 19 days (2010 : 29 days). 29 : (2010 days acquisitions, of timing account19 the was of take adjustedto year, the in revenue total
2 to 4 months Over 4 months Not yet due 0 to 2 months The ageing of the provision for impairment of trade receivables is as follows: receivablesas trade is impairment of provisionfor the of ageing The 2 to 4 months Over 4 months Not yet due 0 to 2 months The ageing of gross trade receivables is as follows: as receivables trade is gross of ageing The UK Sterling Other The average credit period taken on trade receivables, calculated by reference to the amount owed at the year end as a proportion proportion a as end year the at owed amount the to reference by calculated receivables, trade on taken period credit average The of currencies:following the in denominated receivables trade are Group’s The The Directors estimate that the carrying amount of trade receivables approximates to their fair value. fair carryingtheir Directors Theestimatethe that receivablesto trade approximates of amount Limited 2CCH Opal : (2010 Limited Office Communications Future to loan a comprise 2011 March 31 at parties related to Loans Group. associatedEcocallthe company Limited),an and of * The prior year balance sheet has been restated to reflect the finalisation of the Tiscali UK acquisition purchase price (note 29). Prepayments and accrued income and Trade other receivables Loans to related parties Trade receivablesTrade – gross Less provision for impairment receivablesTrade – net Other receivables Current – trade and other receivables Trade and other receivablesother comprise: and Trade 16. Trade and other Trade receivables16. 74
Notes to the consolidated financial statements continued
16. Trade and other receivables (continued)
Movements in the provisions for impairment of trade receivables are as follows:
2011 2010 £m £m Opening balance (37) (19) Charged to the income statement (33) (25) Receivables written off as irrecoverable 39 23 Acquisition of subsidiaries – (16) (31) (37)
Trade receivables of £22m (2010 : £23m) were past due but not impaired. These balances primarily relate to Residential and Corporate fixed line customers. The Group has made provisions based on historical rates of recoverability and all unprovided amounts are considered to be recoverable. The ageing analysis of these trade receivables is as follows:
2011 2010 £m £m Not yet due – – 0 to 2 months 15 15 2 to 4 months 4 2 Over 4 months 3 6 22 23
17. Trade and other payables
2010 2011 *As restated £m £m Trade payables 112 115 Other taxes and social security costs 33 26 Other payables 34 23 Accruals and deferred income 197 236 376 400
* The prior year balance sheet has been restated to reflect the finalisation of the UK Telco acquisition purchase price (note 29).
The average credit period taken on trade payables, calculated by reference to the amounts owed at the balance sheet date as a proportion of the amounts invoiced by suppliers in the year, adjusted to take account of the timing of acquisitions, was 24 days (2010 : 25 days). The Directors consider that the carrying amount of trade and other payables approximates to their fair value.
TalkTalk Telecom Group PLC | Annual Report 2011 Overview Performance review Governance Financial statements Other information
1 9 75 19 10 £m £m £m
100 490 390 2010 2010 2010
1 9 35 £m £m £m 44 Annual Report 2011 100 2011 2011 2011
295 395 | 2015 2013 Maturity TalkTalk Telecom Group PLC PLC Group Telecom TalkTalk debt to EBITDA and require minimum levels of interest cover and fixed charges (interest and operating lease expenditure) expenditure) lease operating and (interest charges fixed and cover interest of levels minimum require and EBITDA to debt
net year. the complianceof end in covenantswithwas the these at Group The cover. under this facility is at a margin over LIBOR for the relevant currency and for the appropriate period.appropriateactual The marginthe currencyrelevantfor and the LIBOR over for margin facility this a under at is of mostaccountingrecentEBITDA calculated the respect of in to debt ratio net of ratio the drawingdependson the any applicable to restrict facility this in included Covenants facility. this under payable are fees non-utilisation and Utilisation period. and prior year. During the year the final maturity date on the loan was extended from 2013 to 2015. to extended 2013 was from loan maturityfinal the the on year date Duringthe year. prior and £550m revolving credit facility (“RCF”): drawingsrespect of in payable committedrate interest The a £550m,has of RCFGroup The 2013. March in which matures under this facility is at a margin over LIBOR for the relevant currency and for the appropriate period. The actual margin applicable Covenantsapplicable period. actualappropriate The margin the period. currencyfor relevant and the LIBOR for over margin accounting facility a this at under is recent most the of respect in calculated EBITDA to debt net of ratio the on depends drawing any to fixed charges and coverinterest of levels minimum require EBITDAand facility this to includeddebt in net restrict of ratio the current the complianceof end in covenantswithwas the these at Group The cover. expenditure) operating(interest lease and over the Bank of England base rate. base England of Bank the over drawings of respect in payable £100mrate term loan: interest The 2015. March in matures which £100m, of Loan Term committed a has Group The Details of the current and non-current borrowing facilities of the Group for the year are set out below. out set are year the non-currentfor current and Group the borrowing facilitiesDetails the of of Bank overdrafts: Overdraftassistshort-term in cashuncommittedto management; used these facilities margin are a facilitiesat interest bear Non-current £100m term loan £550m revolving credit facility Bank overdrafts Other uncommitted bank loans Current The effective interest rate on bank deposits and money market funds was 0.6% (2010 : 0.4%). : 0.6%was funds(2010 market effective depositsThe money bank and on rate interest Loansb) and other borrowings comprise: Cash at bank and in hand (a) Cash and(a) cash equivalents are as follows: 18. Cash18. and cash equivalents, loans and other borrowings 76
Notes to the consolidated financial statements continued
18. Cash and cash equivalents, loans and other borrowings (continued)
Borrowing facilities The Group had undrawn committed borrowing facilities at the end of the year, in respect of which all conditions precedent had been met, as follows:
2011 2010 Maturity £m £m Undrawn available committed facilities 2013 255 160
The book value and fair value of the Group’s loans and other borrowings, all of which are in Sterling, are as follows:
2011 2010 £m £m Less than 1 year 44 19 1 to 2 years 295 – 2 to 3 years – 490 3 to 4 years 100 – 439 509
Securities and guarantees None of the borrowings are secured over Group assets. Although some guarantees are given by Group companies, these guarantees are to cover commercial obligations and, as such, create no additional credit risk.
19. Financial risk management and derivative financial instruments
The book value and fair value of the Group’s financial assets, liabilities and derivative financial instruments, excluding the Group’s loans and other borrowings shown above, are as follows: Book and fair value 2010 2011 *As restated £m £m Cash and cash equivalents 1 1 Trade and other receivables 155 180 Non-current investments and investment in joint venture 5 1 Trade and other payables (376) (400) Loans to related parties 2 3
* The prior year balance sheet has been restated to reflect the finalisation of the Tiscali UK and UK Telco acquisition purchase price (note 29).
(a) Financial instruments
The Group’s activities exposed it to a variety of financial risks including market risk (such as currency risk and interest rate risk), credit risk and liquidity risk. The Group Treasury function used certain financial instruments to mitigate potential adverse effects on the Group’s financial performance from these risks. These financial instruments primarily consisted of bank loans, interest rate swaps and foreign exchange swaps. Other products, such as currency options, can also be used depending on the risks to be covered but have not been used in the current or preceding financial year. The Group does not trade or speculate in any financial instruments.
TalkTalk Telecom Group PLC | Annual Report 2011 Overview Performance review Governance Financial statements Other information
– – – – 77 £m £m £m Total Total
439 439 2010 509 509
2 – – – – – 3 3 £m £m £m Annual Report 2011 Other Other 2011
| – – 23 23 £m 38 38 £m Euro Euro £m £m (41) (23) 416 439 468 509 TalkTalk Telecom Group PLC PLC Group Telecom TalkTalk UK Sterling UK Sterling
on interest rates and periods for each loan or rollover. or loan each periodsfor and rates interest on The Group’s interest rate risk arises primarily from cash, cash equivalents and borrowings, all of which are at floating rates of cash,primarilyarisesriskfloating rates at from cash rate interest equivalents which borrowings,are of and all Group’s The interest other to and LIBOR linked are risk. rate cash interest floating flow These rates to Group the expose thus and interest financial these instrumentsinstrumentcash flows arising Future currency.the from and depend to appropriate as bases rate (d) Interest(d) rate risk 2010 Borrowings before derivatives Derivative which were inherited from CPWdemerger. inherited from on which were currencysubsidiariesoverseas cashby derivatives balancesforeign usedmanagement held of Group for the year Duringthe 2011 Borrowings before derivatives Derivative The effect of foreign exchange derivatives on borrowings at the year end was as follows: as was end year the at borrowings on derivatives exchange foreign of effect The Other equity movement 10% movement10% in the UK Sterling/Euro exchange rate Income statement movement analysed in comparison to year end rates (adjusted for funding to related parties and assuming all other variablesparties otherremain related assumingall and to funding for (adjusted rates end year comparison analysed in to constant)follows: as operating expenses, and are primarily denominated in Euro and US dollar. The Group also uses short-termuses currencyalso Group swapsThe dollar. US and Euro primarily denominatedin operatingexpenses, are and outstanding£49m). of sterlingvalue : the currency contracts £23m(2010 was liquidity2011, March for management. 31 At sensitivity this rates; exchange canforeign becontracts exchange movements in sensitive foreign Borrowingsto are and (c) Foreign(c) exchange risk forwarduses currency Group The contractstransactional hedge andcost sales exposures,of through to whichmainly arise No contracts No withembedded derivatives identified been accordingly such have derivatives and accounted no been have separately. for (b) Embedded(b) derivatives 78
Notes to the consolidated financial statements continued
19. Financial risk management and derivative financial instruments (continued)
Cash and borrowings, as well as some foreign exchange products, are sensitive to movements in interest rates and such movements have been analysed in the table below by calculating the effect on the income statement and equity of one percentage point movement in the interest rate for the currencies in which most Group cash and borrowings are denominated. Funding to related parties has been offset against gross borrowings in calculating these sensitivities. This annualised analysis has been prepared on the assumption that the year end positions prevail throughout the year, and therefore may not be representative of fluctuations in levels of borrowings.
2011 2010 £m £m 1% movement in the UK Sterling interest rate Income statement movement 5 5 Other equity movement – –
(e) Liquidity risk
The Group manages its exposure to liquidity risk by regularly reviewing the long and short-term cash flow projections for the business against facilities and other resources available to it. Headroom is assessed based on historical experience as well as by assessing current business risks, including foreign exchange movements. Existing facilities do not expire until March 2013; it is Group policy to refinance debt maturities significantly ahead of maturity dates. The table below analyses the Group’s financial liabilities into relevant maturity groupings. The amounts disclosed in the table are the contractual undiscounted cash flows assuming year end interest rates remain constant and that borrowings are paid in full in the year of maturity.
More than Less than 1 year 1 to 2 years 2 to 3 years 3 to 4 years 4 to 5 years 5 years Total
£m £m £m £m £m £m £m 2011 Loans and other borrowings (54) (305) (3) (103) – – (465) Derivative financial instruments – payable (23) – – – – – (23) Derivative financial instruments – receivable 23 – – – – – 23 Trade and other payables (376) – – – – – (376)
More than Less than 1 year 1 to 2 years 2 to 3 years 3 to 4 years 4 to 5 years 5 years Total
*As restated £m £m £m £m £m £m £m 2010 Loans and other borrowings (33) (14) (504) – – – (551) Derivative financial instruments – payable (49) – – – – – (49) Derivative financial instruments – receivable 49 – – – – – 49 Trade and other payables (400) – – – – – (400)
* The prior year balance sheet has been restated to reflect the finalisation of the UK Telco acquisition purchase price (note 29).
(f) Credit risk
The Group’s exposure to credit risk is regularly monitored. Debt, investments, foreign exchange and derivative transactions are all spread amongst a number of banks all of which have short or long-term credit ratings appropriate to the Group’s exposures. Trade receivables primarily comprise balances due from Residential and Corporate fixed line customers, and provision is made for any receivables that are considered to be irrecoverable.
TalkTalk Telecom Group PLC | Annual Report 2011 Overview Performance review Governance Financial statements Other information
– 9 1 79 14 47 47 18 24 29 £m £m £m 392 2010 2010 2010 (509) (508) 130%
1 9 14 12 15 10 32 46 46 £m £m £m Annual Report 2011 415 2011 2011 2011
| (439) (438) 106% TalkTalk Telecom Group PLC PLC Group Telecom TalkTalk notes 21 to 22. to 21 notes
Non-current Current Operating efficiencies One Company integration Property Contract and other 20. Provisions20. Net debt to equity ratio Net debt Equity Debt Cash and cash equivalents The gearing ratio at the year end is as follows: as is end year the at ratiogearing The The Group’s Board reviews the capital structure on an annual basis. As part of this review, the Board considerscost Board ofthe capital the reviewsthe basis.partreview, annual As structureBoard this an of on Group’s The 100% to 75% of ratiorisksgearing capitalmedium-termassociatedtarget the withcapital.a classeachand of has Group The marginallywas 130%) : 106%(2010 of 2011 March 31 at equity.ratiogearing The proportion to debt a net as determinedof medium-termtarget. demonstratingour range towards target progress the of end higher the above The capital structure of the Group consists of debt, which includes the borrowings disclosed in note 18, cash and cash equivalents equivalents cash and cash 18, note in disclosed borrowings the includes which debt, of consists Group the of structure capital The equity and attributable equityparent, comprising the to holdersof issued capital, disclosed earningsreservesas retained and in The Group manages its capital to ensure that entities in the Group will be able to continue as going concerns going continue maximising whileas to able be will Group entitiesthe that in itsensure capital manages Group The to equity and debt optimisationbalance.the stakeholders the of through to return the (g) Capital(g) risk management 80
Notes to the consolidated financial statements continued
20. Provisions (continued)
Operating One Company Contract and efficiencies integration Property other Total
£m £m £m £m £m 2011 Opening balance – 14 9 24 47 Charged to income statement 12 6 1 – 19 Utilised in the year – (10) (2) (10) (22) Unwinding of discount – – 1 1 2 12 10 9 15 46
Operating One Company Contract and efficiencies integration Property other Total
£m £m £m £m £m 2010 Opening balance – 6 – 2 8 Charged to income statement – 11 – – 11 Acquisition of subsidiaries – – 10 41 51 Utilised in the year – (3) (2) (19) (24) Released in the year – – – (1) (1) Unwinding of discount – – 1 1 2 – 14 9 24 47
Provisions are categorised as follows:
(a) Operating efficiencies
Operating efficiencies provisions relate principally to redundancy costs (note 9) and are only recognised where plans are demonstrably committed and where appropriate communication to those affected has been undertaken at the balance sheet date. These provisions are typically expected to be utilised over the 12 months following announcement of the reorganisation.
(b) One Company integration
One Company provisions relate principally to redundancy costs (note 9) and are only recognised where plans are demonstrably committed and where appropriate communication to those affected has been undertaken at the balance sheet date and onerous contract costs, where a decision has been made to exit a contract as part of the One Company reorganisation. These provisions are typically expected to be utilised over the 12 to 24 months.
(c) Property
Property provisions relate to dilapidations and similar property costs, and costs associated with onerous property contracts. All such provisions are assessed by reference to the terms and conditions of the contract and market conditions at the balance sheet date. Property provisions are expected to be utilised over the next nine years.
(d) Contract and other
Contract and other provisions relate to onerous contracts and contracts with unfavourable terms arising on the acquisition of businesses and anticipated costs of unresolved legal disputes. All such provisions are assessed by reference to the best available information at the balance sheet date. Contract and other provisions are expected to be utilised over the next 24 months.
TalkTalk Telecom Group PLC | Annual Report 2011 Overview Performance review Governance Financial statements Other information
– – 4 1 2 1 4 1 81 (1) (1) (1) (4) (3) (3) £m 35 £m £m Total Total (15) (55) 415 702 392 392 2010 (251)
– – 4 – 1 – – 2 1 4 1 (1)
(3) (3) £m £m 35 £m (15) Annual Report 2011 2011
378 378 406 232 400 | (251) Retained Retained earnings and earnings and other reserves other reserves
– – – – – – – – – – – – – – – £m £m (55) 914 529 2010 (513) reserve reserve (513) (513) (987) million Demerger Demerger
– – – – – – – – – – – – – – (1) (1) (4) £m £m (65) (59) (60) (60) 914 2011 reserve reserve million TalkTalk Telecom Group PLC PLC Group Telecom TalkTalk Translation Translation
– – – – – – – – – – – – – – – – £m £m 586 986 586 586 (400) Share premium Share premium – – – – 1 – – – – – 1 – – – – – – – – 1 1 £m £m Share capital Share capital book value of the businesses that formed Carphone Warehouse Group plc. Group Carphonebusinesses formed Warehouse thatthe of value book
arrangement under part 26 of the Companies Act. Under this scheme the former Parent Company of the Group, CPW Group, was the Company of Parent Companies former Act. schemethe arrangementthe part this of underUnder 26
the On 29 March 2010 the Group became a separately listed entity on the London Stock Exchange, under a court approved scheme scheme approved court a under Exchange, Stock London the on entity listed separately a became Group the 2010 March 29 On Telecom TalkTalk of Company, Parent new This CPW. in shares B and A holding incorporated Company Parent new representing a and arrangement, of delisted scheme the of part as plc, Group Warehouse Carphone to £182m of dividend a paid PLC, Group The ultimate Parent Company of the Group, TalkTalk Telecom Group PLC, was incorporated on 15 December 2009. incorporated15 was PLC, on Group Telecom TalkTalk Group, the Company ultimateof Parent The prior the during Group the Company ultimate of Parent became the PLC Group Telecom TalkTalk 1, discussedAsnote in year. prior the place throughout in this been structure had if as financial these prepared been and statements have year As explained in note 1, the demerger reserve primarily reflects the profits or losses arising on the transfer of investmentsof reservedemerger transfer primarilythe the on reflects losses profits or arising the 1, note explainedin As CPWdemerger. assets of net on and Equity dividends Movement in demerger reserves MarchAt 31 2010 Issue of share capital Capital reduction Share-based payments reserve credit (note 5) Share-based payments reserve debit (note 5) At 1 April 2009 Net loss for the year Currency translation and cash flow hedges on itemsTax recognised directly in reserves (note 7) At 31 MarchAt 31 2011 Tax on itemsTax recognised directly in reserves (note 7) Settlement of Group ESOT shares Share-based payments reserve credit (note 5) Equity dividends Net profitfor the year Exchange differences on translation of foreign operations Recycling of translation reserve Currency translation and cash flow hedges At 1 April 2010 22. Reserves In addition redeemable preference shares of £50,000 of shares additionin preference redeemedredeemable In transaction demergerpart were issued the as and of were year. the Allotted, called-up and fully paid: Ordinary shares pence of 0.1 each 21. Share capital21. 82
Notes to the consolidated financial statements continued
22. Reserves (continued)
Both the share capital and share premium in the new company arose as a result of the issuance of new shares in the Group to ordinary Shareholders of CPW. As these shares were issued for nil consideration, both the share capital of £1m and share premium of £986m have been treated as arising from the demerger reserve. On 29 March 2010 the share premium relating to the ordinary shares was reduced by £400m by way of a court-approved capital reduction. This had the effect of creating distributable reserves which may be released at the discretion (and upon the resolution) of the Board. The £55m movement in the demerger reserve during the year ended 31 March 2010 arose as a result of the restructuring of CPW. As explained in the prospectus such movements have principally arisen from the allocation of operating expenses and profits arising in companies that form part of the TalkTalk Group after the demerger that related to the business of Carphone Warehouse Group plc, including the impact in 2009 of the Best Buy Europe Joint Venture Transaction, and dividends within CPW. During the year ended 31 March 2010 equity dividends of £251m were paid. Of this total, £27m represented the ordinary final dividend of CPW for the financial year ended 31 March 2009, £13m represented the ordinary interim dividend of CPW for the financial year ended 31 March 2010, and £29m represented a special interim dividend paid by CPW to its Shareholders prior to demerger. The demerger dividend of £182m was paid by CPW to Carphone Warehouse Group plc as part of the demerger transaction, and represented the book value of assets transferred to Carphone Warehouse Group plc from CPW.
Net purchase of own shares The TalkTalk Telecom Holdings ESOT held 5 million shares at 31 March 2011 (2010 : 10 million) in the Company for the benefit of CPW former employees. The Group ESOT has waived its rights to receive dividends and none of its shares have been allocated to specific schemes. At the year end the shares had a market value of £7m (2010 : £13m).
23. Analysis of changes in net debt
Exchange Opening Net cash flow movements Closing
£m £m £m £m 2011 Cash and cash equivalents 1 – – 1 Bank overdrafts (9) – – (9) (8) – – (8)
Current loans and other borrowings (10) (25) – (35) Non-current loans and other borrowings (490) 97 (2) (395) (500) 72 (2) (430)
Total net debt (508) 72 (2) (438) Loans to related parties 3 (1) – 2 Total net debt including loans to related parties (505) 71 (2) (436)
TalkTalk Telecom Group PLC | Annual Report 2011 Overview Performance review Governance Financial statements Other information
1 3 83 (9) (8) 29 95 34 48 £m £m £m (10) 177 2010 2010 Closing (490) (508) (505) (500)
– – – – – – – – – 14 38 56 £m £m 83 £m Annual Report 2011 177 2011 2011
| Exchange movements (5) 19 24 £m (10) (56) (75) (65) (450) (394) Net cash flow
6 – £m (27) (33) (55) 397 (425) (425) (452) Opening TalkTalk Telecom Group PLC PLC Group Telecom TalkTalk cost of which for the year ended 31 March 2011 was £3m (2010 : £3m). : £3mwas (2010 2011 March 31 ended year the costwhichfor of
The Group provides variousdefinedaprovides significant Group contributionbenefitTheof of the its employees, for number pension schemes the 26. Pension26. arrangements Expenditure contracted, but not provided for in the financial statements The Group had entered into the following amount of contractual commitments for the acquisition of property, plant and equipment equipment and plant property, of acquisition the for commitments contractual of amount following the into entered had Group The end: year the at 25. Capital25. commitments Less than 1 year 2 to 5 years Greater than 5 years The Group leases networkleases Group The infrastructure offices and non-cancellable under varying have operating leases.leases terms, The individually whichwere leases options, significantpurchase Group. no escalation the rights.were to renewal clauses There and outstanding had follows: Group paymentsas commitmentsThe minimum due future for 24. Commitments24. under operating leases During the prior year, the Group repaid funding of £425m and drew down £500mdown drew and £425mfacilities. of new funding on repaid Group the year, prior Duringthe Total net debtTotal parties related to Loans net debtTotal including loans to related parties Non-currentborrowingsother and loans Current loans and other borrowingsother and Current loans 2010 cashCash equivalentsand overdraftsBank 84
Notes to the consolidated financial statements continued
27. Contingent liabilities
As at the 31 March 2011 the Group is awaiting a decision from Ofcom as to what, if any, action it will take as result of its investigation of the Group in respect of General Condition 11 concerning certain bills the Group has issued to customers after they ceased to receive service from the Group. No provision has been made in these financial statements as at it is uncertain both as to whether or not Ofcom will impose any financial penalty and the amount of such penalty.
28. Related party transactions
During the year, the Group had the following disclosable transactions: Carphone Warehouse Other related Best Buy Europe Group plc parties
£m £m £m 2011 Loans owed to the Group – – 2
2010 Revenue for services provided 15 – – Expenses for services received (24) (2) – Net interest income – 5 – Loans owed to the Group – – 3 Other amounts owed to the Group 8 – – Amounts owed by the Group (18) (1) –
Following the demerger of the Group from CPW and the adoption of IAS 24 (Revised), Best Buy Europe and Carphone Warehouse Group plc are no longer considered related parties (see note 1). Other related parties comprises loans to Future Office Communications Limited (2010 : Opal 2CCH Limited and Ecocall Limited), associated undertakings of the Group. Revenue for services provided during the prior year principally relates to telecommunication services. Expenses for services received relate primarily to IT services and commissions on product sales. All products and services were provided at market rates. The remuneration of the Directors, who are key management personnel of the Group, is set out in the Directors’ remuneration report on pages 32 to 38.
TalkTalk Telecom Group PLC | Annual Report 2011 Overview Performance review Governance Financial statements Other information 1 1 1 2 3 85 £m (19) (18) (42) (29) (60) 316 470 186 155 392 392 378 180 262 586 (513) (490) (998) (508) (490) (400) 1,390 1,204
As restated
– – – – – – – – – – – – – – – – 1 – – – 1 – – – 1 (1) (1) (1) £m Annual Report 2011
| deferred UK Telco consideration Restatement of – – – – – – – – – – – – – – – – – – – – – – – – 14 14 £m (14) (14) Tiscali goodwill Restatement of 1 1 1 2 3 £m (19) (18) (42) (29) (60) 172 316 155 392 392 378 166 262 485 586 (491) (513) (401) (999) (508) (490) reported 1,219 1,391 TalkTalk Telecom Group PLC PLC Group Telecom TalkTalk As previously 1 ‘Presentation of financial statements’. financial of ‘Presentation 1
prior year has been restated to £162m in line with the requirements of IAS 1 ‘Presentation of financial statements’. statements’. financial of ‘Presentation 1 IAS of requirements the with line in £162m to restated been has year prior
IAS year. year.
of £1m. The carrying value of goodwill of UK Telco in the prior year has been restated to £4m in line with the requirements requirements the with line in £4m to restated been has year prior the in Telco UK of goodwill of value carrying The £1m. of of acquisition of Tiscali UK. This resulted in an adjustment to goodwill of £14m. The carrying value of goodwill of Tiscali UK in in UK Tiscali of goodwill of value carrying The £14m. of goodwill to adjustment an in resulted UK.This Tiscali of acquisition the goodwill to adjustment an in resulted has This settled. and finalised was Limited Telco UK on consideration deferred The A net adjustment in respect of working capital and customer numbers was agreed between the Group and Tiscali S.p.A. for the the for S.p.A. Tiscali and Group the between agreed was numbers customer and capital working of respect in adjustment net A
Demerger reserve Retained earnings and other reserves Funds attributable to equity Shareholders Equity Share capital Share premium Translation reserve Total liabilitiesTotal Net assets Non-current liabilities Loans and other borrowings Provisions Loans and other borrowings Provisions Current liabilities andTrade other payables Corporation tax liabilities Trade andTrade other receivables Loans to related parties assetsTotal Current assets Cash and cash equivalents Inventories Property,plant and equipment Non-current asset investments Deferred tax assets Non-current assets Goodwill Other intangible assets that Balance March sheet at 31 2010 The comparative information has been restated to reflect the impact of this settlement, this only impacted the balance sheet. sheet. balance the impacted only this settlement, this of impact the reflect to restated been has impact not information did comparative restatement The above the as presented been not 2009has March 31 ended year the for sheet balance restated A • During the year the following adjustments were agreed in respect of acquisitions:respect of in adjustmentsfollowingagreed the were year Duringthe • 29. Restatement29. of comparative information 86
Independent Auditor’s report to the Directors of TalkTalk Telecom Group PLC
We have audited the Parent Company financial statements Opinion on other matters prescribed by the Companies Act 2006 of TalkTalk Telecom Group PLC for the period ended In our opinion: 31 March 2011 which comprise the Company balance sheet, • the part of the Directors’ Remuneration Report to be the Company reconciliation of movements in Shareholders’ audited has been properly prepared in accordance funds and the related notes 1 to 9. The financial reporting with the Companies Act 2006; and framework that has been applied in their preparation is applicable law and United Kingdom Accounting Standards • the information given in the Directors’ Report for the (United Kingdom Generally Accepted Accounting Practice). financial year for which the financial statements are prepared is consistent with the Parent Company This report is made solely to the Company’s members, financial statements. as a body, in accordance with Chapter 3 of Part 16 of the Companies Act 2006. Our audit work has been undertaken so Matters on which we are required to report by exception that we might state to the Company’s members those matters We have nothing to report in respect of the following matters we are required to state to them in an auditor’s report and for where the Companies Act 2006 requires us to report to you no other purpose. To the fullest extent permitted by law, we do if, in our opinion: not accept or assume responsibility to anyone other than the Company and the Company’s members as a body, for our • adequate accounting records have not been kept by the audit work, for this report, or for the opinions we have formed. Parent Company, or returns adequate for our audit have not been received from branches not visited by us; or Respective responsibilities of Directors and auditor • the Parent Company financial statements and the part of As explained more fully in the Directors’ Responsibilities the Directors’ Remuneration Report to be audited are not Statement, the Directors are responsible for the preparation in agreement with the accounting records and returns; or of the Parent Company financial statements and for being satisfied that they give a true and fair view. Our responsibility • certain disclosures of Directors’ remuneration specified is to audit and express an opinion on the Parent Company by law are not made; or financial statements in accordance with applicable law and • we have not received all the information and explanations International Standards on Auditing (UK and Ireland). Those we require for our audit. standards require us to comply with the Auditing Practices Board’s Ethical Standards for Auditors. Other matters We have reported separately on the Group financial statements Scope of the audit of the financial statements of TalkTalk Telecom Group PLC for the year. An audit involves obtaining evidence about the amounts and disclosures in the financial statements sufficient to give reasonable assurance that the financial statements are free John Murphy (Senior Statutory Auditor) from material misstatement, whether caused by fraud or error. for and on behalf of Deloitte LLP This includes an assessment of: whether the accounting policies Chartered Accountants and Statutory Auditor are appropriate to the Parent Company’s circumstances and London, United Kingdom have been consistently applied and adequately disclosed; 18 May 2011 the reasonableness of significant accounting estimates made by the Directors; and the overall presentation of the financial statements. In addition, we read all the financial and non-financial information in the annual report to identify material inconsistencies with the audited financial statements. If we become aware of any apparent material misstatements or inconsistencies we consider the implications for our report.
Opinion on financial statements In our opinion the Parent Company financial statements: • give a true and fair view of the state of the Company’s affairs as at 31 March 2011; • have been properly prepared in accordance with United Kingdom Generally Accepted Accounting Practice; and • have been prepared in accordance with the requirements of the Companies Act 2006.
TalkTalk Telecom Group PLC | Annual Report 2011 Overview Performance review Governance Financial statements Other information 1 87 £m 379 2011 487 487 586 996 996 966 966 (517) (122) (122) (395) (395) 1,483 9 9 4 5 6 7 8, 9 Annual Report 2011
| Notes TalkTalk Telecom Group PLC PLC Group Telecom TalkTalk
A Stirling A Chief FinancialChief Officer 2011 May 18
D Harding D ExecutiveChief Officer 2011 May 18 The accompanying notes are an integral partcompanybalance sheet.integral this of an accompanyingThe are notes behalf by: its on signed were They 2011. May 18 on Board the financial by These approved statements were Share premium Retained earnings and other reserves Equity Shareholders’ funds Equity Share capital Total liabilitiesTotal Net assets Non-current liabilities Loans Total assetsTotal Current liabilities Creditors: amounts due within one year Current assets Debtors: amounts due within one year Fixed assets Non-current asset investments As at 31 March 2011 March 31 at As Company balance sheet balance Company 88
Company reconciliation of movement in Shareholders’ funds
2011 £m Loss for the period (10) Equity dividends (15) Retained loss for the period (25) Issue of share capital 987 Net cost of share-based payment 4 Net movement of Shareholders’ funds 966 Opening Shareholders’ funds – Closing Shareholders’ funds 966
TalkTalk Telecom Group PLC | Annual Report 2011 Overview Performance review Governance Financial statements Other information 89
Annual Report 2011
| TalkTalk Telecom Group PLC PLC Group Telecom TalkTalk statement,corresponding witha entry reserves. in
that will eventuallywill thatvest.
balance sheet date, with the following exception: following with balancethe date, sheet relevant facility. All other borrowing costs are recognised in the income statement in the period in which they are incurred. are they which in period the in statement income the in recognised are costs borrowing other All facility. relevant
substantivelybalancedate.sheet the enactedat balancedate sheet the differencesat timing reversed originatedbutnot all respect have recognisedof in that is tax Deferred occurred athave future the in less, tax pay to right a or more, pay obligation to an transactionsin result where eventsthat or the recharges the costshare-baseditssubsidiary paymentsof the recharges to undertaking investmentaccordingly.reduced the is Taxation enactedorbeen have thatlaws and rates tax the using recovered or paid be amountsexpectedat provided to is Current tax income itssubsidiary investmentsCompanyShare-basedto additionspaymentsthe onundertakings basedto as issuedby treated are vestingrelevantperiod, the with corresponding reserves.grant,over Company spread the credit the to of Where value fair the expense since the previous balance sheet date is recognised in the incomestatement, the recognisedcorrespondingin withis a entry balancedate sheetpreviousreserves. sinceexpensethe in expectationsschemes performancewithFor for market adjustedonly vestofis expectedoptionscriteria, to of number the the recognisedin is balancecumulativedate vesting.sheetprevious movement in sinceTheexpensethe to priorleavers Fair value is measured by use of a Binomial model for share-based payments for Binomialwithmodelperformance internal a of EPS use criteria as by (such measured is value Fair withexternal those performanceCarlo for model Monte targets). a TSR and criteriaas targets) (such schemeswithFor non-market performance recalculatedbalanceeach vest is at optionsexpectedcriteria, to of number the expectations on cumulativevesting.based performance movementdate, in sheet The of to prior leavers of against and target The CompanyTheissues equity settled share-basedcertain payments to employees. Equity settled share-based payments are of number the estimate of an vestingperiod, on the based grant,expensedover of and date the at value fair at measured shares Equity instruments directissuanceproceeds received, of costs. the net Equityat recorded instrumentsCompany are the issuedby Share-based payments Bank fees and legal costslegal externalassociatedand securing of with financingcapitalised of the term are amortisedfees Bank and the over the These are initially measured at fair value (which is equal to cost at inception), and are subsequently measured at amortisedsubsequentlyat measured are and cost, costinception), at to equal (whichis value fair initiallyat measured are These difference hedge. Any value fair a in hedged identifieda item effective are as the usingthey method, where except rate interest of transactionterm betweenof settlementthe proceeds net costsrecognisedover borrowingsthe the is and of redemption or borrowing. the of itsliabilities. of specificaccounting The for policies financialadopted liabilitiesequity and below. instruments out set are Loans and other borrowings committedborrowings other represent and Loans uncommitted and overdrafts. bank loans, and bank Financial liabilities and equity instruments Financialliabilitiesequity and instrumentsclassified substancecontractualare the the of accordingto arrangements entered Company afterequitythe An assets of deducting into. contractthe instrument allany in interest evidencesresidualis that a charges associated with the investment and capital contributions by way of share-based payments, less any provision for impairment. impairment. for Investments provision any less payments, share-based of way by consideration, of value cost, fair at acquisitionrecorded the being are Fixedassetinvestments ventures jointsubsidiaries and in contributions capital and investment the with associated charges The financial statements have been prepared on the going concerngoing considerations the basis. the Details of undertakenon financial Thethe prepared been by statements have Financewithin the review. 19 page on outconclusion set this reaching are Directors in consistentlyapplied been period. all the throughoutprincipalhave They The accounting summarised below. policies are prepared under the historical the undercost accordance conventionin prepared withand applicable KingdomUnited Accounting Standards and December 2009,first Statutoryof set the is Companyincorporated 15 prepared,The was this accounts been on have law. that 2011. MarchDecember 2009 31 15 to periodfrom the for prepared been accordingly have these Basis of preparation ActCompanies the 2006. by required been as have presented They financial separate are Company Thethe statements of 1. Accounting1. policies Notes to the company financial statements financial the company to Notes 90
Notes to the company financial statements continued
1. Accounting policies (continued)
Deferred tax assets are recognised only to the extent that the Directors consider that it is more likely than not that there will be suitable taxable profits from which the future reversal of the underlying timing differences can be deducted. Deferred tax is measured on a non-discounted basis with the tax rates that are expected to apply in the periods in which the timing differences reverse, based on tax rates and laws enacted or substantively enacted at the balance sheet date. The taxation liabilities of certain Group companies are reduced wholly or in part by the surrender of losses by fellow Group companies.
Dividends Dividends receivable from the Company’s subsidiaries and joint venture investments are recognised only when they are approved by Shareholders. Final dividend distributions to the Company’s Shareholders are recognised as a liability in the financial statements in the period in which they are approved by the Company’s Shareholders. Interim dividends are recognised in the period in which they are paid.
Directors The Directors’ remuneration was borne by another Group company and not recharged. Detailed disclosures of the Directors’ remuneration and share based payments are given in the audited section of the Directors’ remuneration report on pages 32 to 38 and should be regarded as an integral part of this note.
Employees The Company has no employees.
Exemptions The Company has taken advantage of the exemption under FRS 8 ‘Related Party Disclosures’ not to provide details of related party transactions with other Group companies, as the Company financial statements are presented together with the consolidated Group financial statements. The Company has applied the exemption under FRS 29 ‘Financial Instruments: Disclosures’ so as not to disclose details of financial instruments held by the Company. Full disclosure of the Group’s financial instruments recognised under FRS 29 (IFRS 7) ‘Financial Instruments: Disclosures’ and IAS 39 ‘Financial Instruments: Recognition and Measurement’ is provided in note 19 to the Group’s annual report and accounts.
2. Loss for the period
As permitted by section 408 of the Companies Act 2006, the Company has elected not to present its own profit and loss account for the period. The Company reported a loss of £10m for the period ended 31 March 2011. The auditor’s remuneration for audit and other services is disclosed in the Corporate governance report on page 29.
3. Dividends
2011 £m Interim dividend for the period ended 31 March 2011 of 1.70p per ordinary share 15 Total ordinary dividends 15
Final dividend for period ended 31 March 2011 of 3.90p per ordinary share 35
The final dividend for the period ended 31 March 2011 was approved by the Board on 18 May 2011 and has not been included as a liability as at 31 March 2011. The expected cost of this dividend reflects the fact that the Group ESOT has agreed to waive its rights to receive dividends.
TalkTalk Telecom Group PLC | Annual Report 2011 Overview Performance review Governance Financial statements Other information – 5 91 £m £m 991 2011 2011 996 996 996 Annual Report 2011
| Telecommunications Telecommunications Telecommunications Nature of business Holding company Holding company Telecommunications Telecommunications Telecommunications Telecommunications Telecommunications TalkTalk Telecom Group PLC PLC Group Telecom TalkTalk 100% 100% 100% Percentage ownership 100% 100% 100% 100% 100% 100% 100%
England and Wales England and Wales England and Wales England and Wales England and Wales England and Wales England and Wales England and Wales England and Wales England and Wales Country of incorporation or registration
demerger transaction.demerger capital of TalkTalk Group Limited, the holding company of the Group’s fixed line telecommunications companies in the UK. the in companies telecommunications line fixed Group’s the of company holding the Limited, Group TalkTalk of capital
investment was received by the Company as consideration for shares issued to the former Shareholders of CPWpart of as Shareholders former the to issued shares for consideration as Company the by received was investment disclosed within note 14 to the consolidated the financial statements.to disclosed14 within note
the
Tiscali UK Limited * Directly held TalkTalk Direct LimitedTalkTalk UK CommunicationTalkTalk Services Limited GIS Telecoms Limited CPW Network Services Limited Onetel Telecommunications Limited CommunicationsTalkTalk Limited (formerly Opal Telecom Limited) Telecom LimitedTalkTalk Name Telecom HoldingsTalkTalk Limited* Group LimitedTalkTalk The Company has investments in the following subsidiary undertakings. To avoid a statement of excessive length, details of of Principaldetails length, Group investmentsexcessive of statement a avoid To undertakings. subsidiary following the in investments has Company The significantinvestments not equity omitted. in been whichare have capital. share holdings are All Broadcasting Limited, British Telecom PLC, Channel Four Television Corporation, Arqiva Limited and Channel 5 Broadcasting Broadcasting 5 Channel and Limited Arqiva Corporation, Television Four Channel PLC, Telecom British Limited, Broadcasting establishedto been order has in venture joint Limited).The TV LimitedTem (formerly Canvas Pro YouView form Limitedto venture joint the Further free-to-airinternet-connectedto new relatingdetail a TVdevelop 2012. servicein homes UK to are Joint venture withBritishagreementThe venture jointBroadcasting a Corporation,into entered Group ITV the 2010 September 10 On On 26 March 2010 the Company became the owner of the entire issued share capital of CPW, that owns the entire issued issued entire the owns that CPW, of capital share issued entire the of owner the became Company the 2010 March 26 On share The of Additions MarchAt 31 2011 Cost and net book value Opening balance December at 15 2009 Subsidiaries Joint venture 4. Non-current asset investments 92
Notes to the company financial statements continued
5. Debtors: amounts due within one year
2011 £m Amounts owed by Group undertakings 485 Other debtors 2 487
Interest on intercompany funding is calculated at the Bank of England base rate plus 3.75%; intercompany deposits receive interest at the Bank of England base rate with no margin. Interest is either paid or capitalised monthly as appropriate. Where they exist, currency balances are calculated at similar rates. Interest is not charged on balances arising between Group companies as a result of intercompany trading; such balances are settled regularly in line with agreed terms of trade, usually through the Group’s netting system, within 30 to 60 days.
6. Creditors: amounts due within one year
2011 £m Amounts owed to Group undertakings 122 122
Interest on intercompany funding is calculated at the Bank of England base rate plus 3.75%; intercompany deposits receive interest at the Bank of England base rate with no margin. Interest is either paid or capitalised monthly as appropriate. Where they exist, currency balances are calculated at similar rates. Interest is not charged on balances arising between Group companies as a result of intercompany trading; such balances are settled regularly in line with agreed terms of trade, usually through the Group’s netting system, within 30 to 60 days.
7. Loans
2011 £m Loans 395 395
The details of the loans are disclosed within note 18 to the consolidated financial statements and should be regarded as an integral part of these financial statements.
TalkTalk Telecom Group PLC | Annual Report 2011 Overview Performance review Governance Financial statements Other information 1 – – 4 93 £m £m Total (15) (10) 987 2011 966
– 4 – £m (15) (10) Annual Report 2011 914 379 2011
400 | reserves and other million Profit and loss – – – £m 586 986 (400) Share premium 1 – – – 1 – £m TalkTalk Telecom Group PLC PLC Group Telecom TalkTalk Share capital reduction. This had the effect reduction.the creatingdistributableBoardhad This of the discretion of the reservesavailableat whichare
dividendrequired.payments as
Ordinary shares pence of 0.1 each for of £986m have been treated as arising from the demerger reserve. Further detail is included in notes 1 and 22 to the to 22 and reserve. demerger 1 the Further notes includedarisingfrom in £986mis detailas of treated been have consolidatedfinancial part financial integral these statements an considered of statements.be which should £400m ordinaryby courtreduced was the a shares of approvedway to relating by premium share the 2010 March 29 On capital on the LondonStockCompaniesExchange,court Act.the the a arrangement under part on schemeof underof Both approved 26 ordinary to Group the in shares issuancenew the of of result a as Company arose the in premium capital share share and the premium share and capitalconsideration, £1m nil share of the issuedfor both were shares these AsCPW. Shareholdersof The Company was incorporated on 15 December 2009 and on 29 March 2010 the Group became a separately listed entityseparatelylistedbecame a Group the December 2009 2010 March 29 on incorporatedCompany15 and Thewas on Loss for the period Net cost of share-based payments Equity dividends Opening balance December at 15 2009 Issue of share capital Capital reduction 9. Reserves9. Called-up, allotted and fully paid: 8. Share capital 94 Overview Performance review Governance Financial statements Other information 95 97 96 98 Glossary information Shareholder Five year record (unaudited) Five year record Other information 96
Five year record (unaudited)
2010 2009 2008 2007 2011 *As restated Unaudited Unaudited Unaudited £m £m £m £m £m Headline results Revenue 1,765 1,686 1,385 1,424 1,116 Net profit for the year 122 106 95 12 (12)
Net assets employed Non-current assets 1,137 1,204 1,319 928 857 Net current assets (liabilities) before provisions (281) (275) (184) (235) (122) Provisions (46) (47) (8) (10) (18) Non-current liabilities (395) (490) (425) (895) (862) Net assets employed 415 392 702 (212) (145)
Headline earnings per share Basic 13.5 11.8 10.7 1.3 (1.4) Diluted 12.8 11.2 10.4 1.3 (1.3)
* The balance sheet at 31 March 2011 has been restated to reflect the finalisation of the Tiscali UK and UK Telco acquisition purchase price (note 29).
On 26 March 2010 CPW demerged into Carphone Warehouse Group plc and the Group. The Company and Carphone Warehouse Group plc were separately listed on the London Stock Exchange. The consolidated financial information of the Group for the years ended 31 March 2010, 31 March 2009, 31 March 2008 and 31 March 2007 have been prepared with the objective of presenting the results, net assets and cash flows of the Group in the form that arose on completion of the demerger, as if it had been a standalone business during those periods.
TalkTalk Telecom Group PLC | Annual Report 2011 Overview Performance review Governance Financial statements Other information 97
Annual Report2011
| TalkTalk Telecom Group PLC PLC Group Telecom TalkTalk Trademark of the Wi-Fi Alliance often used as a general term for wireless networkingto provide wireless technology high that speed uses internet radio waves and network connections Mobile Virtual Network Operator Telecommunication service that carries voice information in a narrowband of frequencies Borrowings net of cash held on deposit at financial institutions Next Generation Network A customer that takes voice, broadband, TV and MVNOservices from the Group Revolving Credit Facility SharedMetallic Path Facility provides broadband services customersGroup to exchange infrastructurefrom TalkTalk Small and Medium sized Enterprises Time Division Multiplexing and a digital data transmission method thatpieces takes which signals are then from placed multiple periodically sources, divides into time them slots, into transmitsback them into down multiple a single path signals and reassembles at the remote end the of time the transmission slots Process by which BT makes available its local network to third party broadband service providers Voice over Internet Protocol Global Positioning System TelecomsTalkTalk Holdings Employee Share Option Trust Headline information represents the Group’s Consolidated income statement,intangiblesandexceptional stateditems that consideredare beforeone-off,be to the amortisationnon-recurring naturein materialandso that theDirectors ofpresented acquisition separately be should performanceunderlying distortion and of avoid to disclosure separate require they that believe on the faceof the income statement High Definition networks. similar and internet the across messages of carriage and routing for used protocol data packet the is Protocol Internet networks through routed be to packets allow to information control some contains and function addressing performsthe IP Internet Service Provider Local Loop Unbundling Unit of data transfer rate equal to 1,000,000 bits per second infrastructure exchange Group TalkTalk from customers services to telephony and broadband both Facility provides Path Metallic Carrier Pre-Select is the automated process under which voice customerswith no can requirement be switched to change from BT and telephone other suppliers numbers, or to dial prefixes or to install dialler boxes The Carphone Warehouse Group PLC, its subsidiary companies, joint ventures and investments Customer Relationship Management The demerger of the The Carphone Warehouse Group PLC into Telecom TalkTalk Group PLC and CarphoneGroup Warehouse plc effective on26 March 2010 Dense Wave Division Multiplexing Earnings Before Interest and Taxation Earnings Before Interest Taxation Depreciation and Amortisation Earnings Per Share Ethernet is a protocol that controls data transmission over a communicationsof frame-based network computer often referred to as a family Cash generated from operations before exceptional items, interest, taxation, dividend payments and investmentsGigabytes per second Asymmetric Digital Subscriber Line technology enables data transmissionhundred times over faster existing than analog coppermodems, wiring providing at data rates for simultaneous several delivery of voice, video and data Average Revenue Per User Joint venture between Carphone Warehouse Group plc and Best Buy Co. Inc. Compound Annual Growth Rate Cash Generating Unit A measure of the number of subscribers moving into or out of a product or service over a specific period of time TelecomTalkTalk Group PLC Unbundling VoIP wi-fi SME TDM Quad play RCF SMPF or partial unbundling Net Debt NGN MPF MVNO Narrowband ISP LLU Mbit/s/Mbps HD IP Group ESOT Headline information Free cash flow Gb GPS EPS Ethernet DWDM EBIT EBITDA CPW CRM Demerger The Company CPS CAGR CGU Churn ADSL ARPU Best Buy Europe Glossary 98
Shareholder information
Financial calendar
AGM 28 July 2011 Ex-dividend date 25 May 2011 Record date 27 May 2011 Dividend payment date 5 August 2011
Our website Visit www.talktalkgroup.com/investors to find out more information on our latest financial results, reports, share price, financial calendar and shareholder services.
TalkTalk Telecom Group PLC | Annual Report 2011 Overview Performance review Governance Financial statements Other information 99 Annual Report2011
| TalkTalk Telecom Group PLC PLC Group Telecom TalkTalk Notes 100
About this report TalkTalk Telecom Group PLC This report was printed, in the UK by Royle Print, a CarbonNeutral printing Registered in England and Wales No. 7105891 company. The report was produced using vegetable based inks on one 11 Evesham Street, London W11 4AR production site avoiding the need for transportation between processes. The paper used in this report is Amadeus 100 Silk for the cover and Amadeus 75 Matt for the text. The cover board comprises 100% post-consumer waste and the text 50% post-consumer waste and 25% pre-consumer waste. Both For more information visit: are independently certified according to the rules of the Forest Stewardship www.talktalkgroup.com Council. Please remove the cover before recycling. Designed and produced by Addison. www.addison.co.uk
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TalkTalk Telecom Group PLC | Annual Report 2011 TalkTalk Telecom Group PLC Directors’ Report: Overview 01 We are one of the leading fixed line Financial highlights 01 voice and broadband telecommunications What we do 04 businesses in the UK. We have over Chairman’s statement 06 4.8 million customers. Chief Executive Officer’s statement 07 Market overview 10 Demerger from Carphone Warehouse In March 2010 we demerged from The Carphone Directors’ Report: Performance review 12 Warehouse Group PLC and listed on the London Business review 14 Stock Exchange as TalkTalk Telecom Group PLC, Finance review 16 and are now a constituent of the FTSE 250. Principal risks and uncertainties 20 Corporate and social responsibility review 22
Directors’ Report: Governance 24 For more information visit: www.talktalkgroup.com Board and advisors 26 Corporate governance 28 Directors’ remuneration report 32 Other statutory information 39
Financial statements 40 Statement of Directors’ responsibilities 42 Independent Auditor’s report to the members of TalkTalk Telecom Group PLC 43 Consolidated income statement 44 Consolidated statement of comprehensive income 45 Consolidated statement of changes in equity 46 Consolidated balance sheet 47 Consolidated cash flow statement 48 Notes to the consolidated financial statements 49 Independent Auditor’s report to the Directors of TalkTalk Telecom Group PLC 86 Company balance sheet 87 Company reconciliation of movement in Shareholders’ funds 88 Notes to the company financial statements 89
Other information 94 Five year record (unaudited) 96 Glossary 97 Shareholder information 98 TalkTalk Telecom PLCGroup Annual Report 2011 Report Annual
www.talktalkgroup.com TalkTalk Telecom Group PLC Annual Report 2011